Lee Gomes Loves Wal-Mart, Hates Family Businesses and Probably Puppies, Too

Do you think that little family businesses should be able to compete against stampeding big box retailers by being able to provide their products online free of unreasonable and costly bureaucratic rules that are not so coincidentally advocated by Wal-Mart, Target and Best Buy and powerhouse lobbying groups like the National Retailers Foundation? Or do you think that these families should wave the white flag and pray that Mom and Dad can get jobs as greeters in front of the 2000-square-foot laundry detergent section of their local big box?

Too much hyperbole? Perhaps not enough when you consider the lede of Wall Street Journal's Lee Gomes piece on Internet tax today...

Do you think that billionaire Internet moguls should continue to benefit from a tax loophole that hurts parks and schools, and makes it harder for your neighborhood bookstore to keep open for business?

I didn't think you did.

In that case, cheer on New York and Texas as they chip away at the popular but grossly unfair advantage enjoyed by the Amazon.coms of the world. Online retailers don't have to collect sales tax on the items they sell if they're "out of state" companies.

Now, Gomes is the Journal's resident tech contrarian. He thinks that he democratizing forces of Internet may NOT be a good thing for politics. He gets bored at the big tech events that tens of thousands of others enjoy attending. And, he thinks that iPods may be the death of quality music. Ha, ha. There goes that Lee again. At times, he's the Andy Rooney of the tech world. But, it does get him attention and a nice paycheck.*

Sadly, his Lou Dobbsian screed against "billionaire Internet moguls" plays right into the hands of those who benefit from limited consumer choices and less competition from small businesses.

On cue, Overstock.com has cut off their affiliates based in New York state thanks to the New York law that Gomes "cheers on." Here is the perspective of one small business owner in the New York Times Bits blog...

Janet Attard, the owner of BusienssKnowHow, which is based in Centereach on Long Island...expressed worry that the state’s new tax rules would hurt her and other small businesses. ...

“I know a lot of small businesses that make a significant amount of money from selling other company’s products,” she said. “Laws like this can put small businesses out of business.”

Oh, and, pay little mind, Lee, that the New York rule is likely unconstitutional. From the director of the Tax and Fiscal Policy Task Force for the American Legislative Exchange Council (a conservative individual membership organization of state legislators) in Forbes...

New York saddles taxpayers with the third-highest tax burden in the nation. But not content with taxing its own citizens and businesses to the max, the Empire State is now unleashing its tax collectors on the rest of the nation. A first-of-its kind law recently passed in New York places new sales taxes on catalog and online retailers in every state of the country. Retailers that have no physical presence in New York, but sell products to New Yorkers, are now expected to collect and send tax revenues to the treasury in Albany....

...Serious constitutional concerns plague this bill. Its overextension of state taxing authority to corporations lacking any physical presence in New York appears to be an unlawful tax on interstate commerce. The U.S. Supreme Court's ruling 16 years ago in Quill Corp. v. North Dakota reaffirmed that a corporation must have a "substantial nexus" with a state in order to be subject to its sales and use taxes.

And, the impact on the people of New York? From the Journal's editorial page earlier this month...

...some companies will feel pressure to pay instead of doing battle with a state government. New York's overall business tax climate ranks 48th among the states, according to the Tax Foundation. Mr. Paterson's money grab could make New York the biggest loser when it comes to tax competitiveness.

*UPDATE (5/28): I struck these sentences and made a couple of other small tweaks because Lee Gomes made the time to send me a thoughtful response to this post. This tells me that he genuinely cares about his position and isn't just being a contrarian to move his column up the "most-read" Journal chart. Oh, in the process of responding to Gomes, I found this Tax Foundation review of the New York law. I wish I had seen it and used it before. Here's a healthy excerpt....

New York's move is just the latest in a string of state efforts to abandon the physical presence rule of taxing out-of-state businesses. In 1992, the U.S. Supreme Court reaffirmed the rule in the Quill v. North Dakota case, holding that a state could not impose sales tax collection obligations on a company, unless the company has either property or employees in the state. Amazon has neither in New York.

As we mention so often, politicians are tempted to increase state spending not by asking constituents to fund the programs they want, but instead by shifting burdens to hidden taxes on (faceless, non-voting) out-of-state businesses. Such moves add to complexity, make the tax system less neutral, and lead to more government than citizens are willing to pay for. In this case, beyond being poor tax policy, New York's "Amazon tax" may also violate the U.S. Constitution's Commerce Clause.

Some local retailers applaud these of raids on out-of-state business:

"This is a first step -- but a critical one -- in our ongoing battle to level the sales tax playing field between New York retailers and the out-of-state Internet giants that have, for years, capitalized on an unfair and unintended competitive advantage driven solely by tax policy," James Sherin, president CEO of the Retail Council New York, said in a statement reacting to the bill's passage.

Far from creating a level playing field, New York's new law and other efforts to abandon the physical presence rule (California has a pending bill, A.B. 1840) actually move away from a level playing field. If every state did what New York did, online retailers would have to keep track of the different rates and bases of the 7,400+ sales taxing jurisdictions in the United States and all the income tax systems. We here at the Tax Foundation have a lot of researchers and subscriptions trying to do that, and it'd be quite burdensome for small online retailers to tackle that task. Meanwhile, brick-and-mortar retailers need only keep track of one sales tax rate and base.

(photo by retrogression)

Comments

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I don't understand, this isn't adding any new tax to internet sales, it is only changing who collects the tax. I understand that for a small online seller this might be difficult and expensive to do because of the many sales tax forms and rates they would have to keep track of. Why not then exempt out of state sellers who don't sell more than $10,000 worth of goods to New York State. It seems reasonable to shift the burden to the seller if they are like Amazon and sell millions of dollars of goods to New York State customers who most likely do not pay the use tax as they are supposed to.

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