FROM THE TUSTIN NEWS, THURSDAY, DEC 16, 1999
THE DOC IS IN...
Collecting taxes not easy in cyberspace
One of the vexing problems in cyberspace is taxation. And one of the fun things about writing a column about computers and the Internet is that I get to write about problems with no easy solutions.
To put this in perspective, E-Commerce is expected to reach $30 billion this year. Most of this with no taxes collected. States and municipalities are looking at possibly $2.4 billion in lost revenues. If you believe estimates, for the next five years this lost revenue could reach $80 billion. Figures like this excite state tax collectors.
Now, I am neither an attorney nor an accountant so bear with me as I try to piece this together. The state of California, which I assume is typical of most states, has on its' books both a "sales" and a "use" tax.
Most of us understand the theory of the sales tax even though it can be very complicated in its' application. For instance, if we purchase a computer from a store in California we pay sales tax. Easy enough so far!
But what happens when we go on-line and purchase a computer from a merchant who is out of state? Here the waters get murky. According to California tax law, "an out-of-state retailer who does not have a physical presence in California (lacks "nexus") is NOT required to collect ... tax on behalf of California." This looks simple. Buy a computer from Dell, which is located in Texas and has no presence in California, and you pay no sales tax. Do you still owe California tax on this purchase? Yes, you owe "use" tax.
According to California tax law, "the use tax is imposed upon a CONSUMER for the storage, use or other consumption in this state of tangible personal property." In other words, even though Dell did not collect sales tax on your new computer, you are liable personally to the state of California for a "use" tax equal to the same amount as the state sales tax.
To research this column I called my own CPA firm and Andy there sent me information on Sales and Use taxes. Fine. But I call back and ask how these are collected. "Well, if you are a business," says Andy, "you report this on your sales tax form." "What if you aren't a business?" I ask. "I'm not sure," says Andy, "I can look into it." Rather than having Andy look it up, I decided to proceed directly to the most elite of all tax collection agencies, the State Board of Equalization.
On my second call to the Board of Equalization I reach one of their tax experts who is knowledgeable, courteous and helpful. I posed my "hypothetical"; out-of-state purchase of a computer for personal use from a merchant with no "nexus" in California. "Well," he says, "you owe use tax on your purchase." "How do I pay?" I ask. "You write a letter to Centralized Collection in Sacramento and send us a check." "Does anyone ever do this?" I ask. "A few people," he answers.
Are you beginning to get the feeling that E-Commerce taxation is getting complicated? There are many arguments for and against E-Commerce taxes. How do you tax a transaction where you purchase goods from a "virtual" store in Alabama that sells goods manufactured in Michigan which are delivered to you in California from a warehouse in Oklahoma? How about downloading a music CD from a computer in Nevada which you play on your computer in California. How about a video tape purchased from a merchant in France?
What is fair to Barnes and Noble who has to charge you sales tax on a book you purchase on-line because they have "nexus" in California? They then have to compete with on-line bookseller Amazon.com who does not have to charge sales tax on the same book. Complicated?
With this much potential revenue at stake, everyone is getting into the act. Naturally, Congress is weighing in. An "Advisory Commission on Electronic Commerce" has been established and recently the President signed a three year moratorium on E-Commerce taxation hopefully to give the feds, states, counties and cities time to sort this out.
Why am I bringing this to your attention? Because this is a serious issue and deserves some serious thought by us consumers. It is going to affect our pocketbooks and we should let our politicians know how we feel. Then also it is just another example of those new and vexing issues posed by cyberspace; one which makes the on-line experience so interesting and intellectually stimulating. Finally, it is just plain fun watching the various jurisdictions jockey for all this money. Never a dull moment in cyberspace.
Sites of the week:
For more information about Internet taxation either enter those words into a search engine like www.hotbot.com , or visit www.house.gov/chriscox/nettax, or try www.vertexinc.com and visit their Tax Cybrary. Have fun researching this.
_____________________________________________________________________________ Dr. Art Holub is a long time resident of Tustin and teaches computer and Internet courses at the Tustin Area Senior Center and the Tustin Adult School. Visit his web site at: www.arholub.com. This column is written to address the computer adventures and concerns of older adults. If you have comments, questions or suggestions for future columns, Email HIM at: firstname.lastname@example.org.
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