(HOST) Until recently, the internet was in effect a tax free zone, but commentator Tim McQuiston says that a number of states have taken steps to change that – includeding Vermont.
(MCQUISTON) On January first, the state of Vermont initiated a new sales tax plan that included a new sales tax on beer. You’ve probably heard of this by now. But raise your hand if you thought there already was a tax on beer. I know I did.
But this new sales tax initiative is about a lot more than beer. On the face of it, the new sales tax plan is a way to stop the loss of sales tax revenues to Internet shopping.
To generate revenues directly and collect the taxes immediately, the state of Vermont and several other states have banded together to have a reciprocal sales tax agreement. Taxable purchases bought in one such state would be collected for another such state. Vermont estimates that the net loss from e-commerce is upwards of twenty-nine million dollars.
Generally, a retailer must charge the local sales tax on taxable goods if they have a local presence. Obviously, the store in the local strip mall has a local presence. But clearly, with the Internet, everyone has a local presence. It’s a brave new world, and it would seem to make sense that everything from DVD players to software purchases should be subject to the sales tax.
On the other hand, Vermont’s own catalogue and Internet retailers and software developers don’t like the whole thing because they have to charge the sales tax of the destination buyer. This is a big problem for such retailers because, while they generally sell cheaper than a local store, they also charge shipping costs. Shipping costs plus sales tax could prove onerous to the consumer.
But don’t get caught up too much in the give and take of the new sales tax. For one thing, it’s going to be hard for the states to force retailers to comply. And anyway, tax revenues are only the tip of the proverbial iceberg.
What’s really behind all this is the federal government. It’s shifting more and more unfunded mandates onto the shoulders of the states, like
Medicaid. The federal government, for obvious political reasons, wants noting to do with a federal sales tax, like the GST in Canada.
This new tax is a pretty clever way for the states participating in this initiative to create a de facto GST, on a limited scale, or at least to try and strong-arm the federal government.
The states are saying, “Hey, if the feds are going to push all this stuff on us and not pay for it, we’ll find a way to cover the costs ourselves.”
Maybe then, the states won’t feel so tapped out.
Timothy McQuiston is editor of Vermont Business Magazine.