...But Wishes AREN'T Horses

I've been seeing a lot of the attitude that if we only wish hard enough, reality will conform to what we want it to be. We see it in nationalized health care, but today I'm going to discuss it in terms of North Carolina's new "nexus" law.

North Carolina has recently become the latest state to pass a "nexus" law, meaning that they consider a business' internet affiliate in their state as constituting a physical presence or "nexus" in their state, therefore requiring that business to collect sales tax in their state. And predictably, to avoid the nightmare this would cause, Amazon has decided to terminate all their North Carolina affiliates, as they have in New York and other states that have tried to pull this little trick.

Nexus laws are one of those moves that accomplishes nothing good, like sending your pawn in to get killed just for the sake of making a move. It's the kind of move 3rd graders make when playing chess, because they can't think half an inch ahead of their own noses. A state grasping at every source of revenue it can find decides that it's not fair that internet businesses don't have to pay sales tax (it isn't, but life isn't fair and that's a whole other post) and says "Hey, let's find a way to tax the bastards!" Of course, if they were thinking even one move ahead, they'd realize that there's a REASON why businesses don't collect sales tax for every hamlet in each of 50 states: it's just too darn expensive.

Sales tax isn't magical; it's a percentage of the sale. In theory it's the buyer's responsibility to pay it. However, most retailers will collect the tax at the point of sale and remit it to the state at the end of the month, quarter, or year (depending on state law). This costs them time and money, which they expend voluntarily to keep things convenient for the buyer. After all, you need buyers to be happy about their purchase in order to keep them coming back. (If you had a choice between two grocery stores, one of which remitted the sales tax for you and one which didn't, at which grocery store would you spend your money?) So acting as an agent for the state is something that businesses already do voluntarily at their own expense.

And then there's the matter of a state's jurisdiction over interstate commerce, which is supposed to be the province of the federal government. The state has the authority to collect tax on goods whose buyers are in their state, but they most certainly do NOT have the authority to require any business that isn't in their state to act as their agent.

And now consider the complexity of 50 states' worth of sales tax laws. Let me give you just one example, the state of Utah, with which I am most familiar. Utah has a base sales tax rate, and each city has the authority to add to that as they see fit to raise revenue for themselves. So Logan city adds on to fund their parks and zoo, while Tooele adds on for the UTA bus system. Also, staple foods are not taxed in Utah, while prepared foods are taxed. Every quarter I get an update flyer from the Utah State Tax Commission alerting me to rate changes in various towns. Because my revenue level is low enough, I remit taxes once a year; higher revenue businesses submit as often as monthly. Now that's just Utah; there's no reason why any state would have to do any of this the same way. Some states don't have a central tax commission; you have to remit taxes separately to state, county, and city. Some states tax food and some don't, and every state defines "non-taxable food" differently. Some states have different tax rates for different product types. And some states have a byzantine sales tax bureaucracy. Picture this times 50. Now imagine you're Amazon and you sell tofu and tights and mixers and camcorders, and you have to program a database that will keep track of each and every one of these changes and calculate sales tax based on which items are taxable at which address which time of year. If you're only selling clothes or books, these items are taxable just about everywhere. But if you're selling items that are sometimes taxed and sometimes not and sometimes taxed but at a different rate, then you have to decide at what rate each item is taxed in each state and for each locality. You can see how this would quickly turn into a horrible nightmare for a number of states greater than about 4 or 5. The complexity of it increases polynomially.

Can you imagine if Disneyland had to ask their customers which state they were from to determine the proper sales tax rate for every customer that walked into their gift shop? Or if some people who bought a giant lollipop got taxed and some didn't, depending on how their state defined taxable food? No, Disneyland gets to charge everybody Anaheim sales tax because that's where they are. But online businesses have to do exactly this wherever they're required to collect sales tax. They don't get to charge sales tax for where they are, because sales tax "belongs" to the buyer. And that's why online businesses are generally opposed to collecting sales tax differentially for an assortment of states. And they resent it even more when this is imposed on them by people who publicly state that the reason for their opposition is that they're just too goddamn lazy to write the state a check.

It would make perfect sense to make sales tax inhere in the seller's location. Ownership of online-ordered items is usually considered to be transferred at the FOB point (usually the point of shipping) so it would be really easy for most businesses to charge the sales tax rate of the FOB point. And that's exactly why it's never going to happen: it makes too much sense. See, businesses could choose to locate disproportionately in places with a low sales tax, so that they could make things easier AND cheaper. And that would be the death knell of stupid politicians of the "Hey, let's raise taxes MORE!" variety. Plus it too wouldn't be "fair," whatever that means.

Nexus laws assume that businesses (a) aren't doing enough of this voluntary, expensive tax collecting on their own, and (b) are capable of doing more of this voluntary, expensive tax collecting. But these assumptions have no basis in reality. If Amazon would choose to pull out of its affiliate program rather than add collection of an extra state's worth of taxes to its staff's burdens, that should tell you that it costs Amazon more to collect an extra state's worth of taxes than they're losing by taking away their affiliate program. And if politicians were smarter at playing chess than 3rd graders, they'd see that as a useful bit of information. Maybe they'd see that they're inflicting a loss on Amazon, while not actually getting any of that juicy tax revenue they thought they'd lay their hands on. And if they foresaw that this would happen, as many of us do, they'd realize this was not a smart move in the first place, because its sole result would be to antagonize Amazon and its former affiliates, who are now no longer paying taxes on their Amazon income nor sales taxes on what they buy with it.

So they happily eat the goose that lays the golden eggs, and then when there are no more golden eggs they moan about how they just don't make geese like they used to. They wish they could tax internet sales, but they can't. But the fact that it doesn't work doesn't seem to stop them from trying.

You know the old saying: "If wishes were horses, then beggars would ride." But wishes aren't horses, so if you want to get somewhere, get up off your lazy beggar's butt and start walking, and quit sitting there moaning that you wanted a pony.