Tag Archives: states

Collecting online sales taxes

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With so many governments struggling to make ends meet, more states are looking at how to collect more sales tax revenue from online purchases. While Internet users may not like this, it seems like this is primarily being held up by complications about how to collect the money:

Under a 1992 Supreme Court ruling, businesses are responsible for collecting sales taxes on every sale they make in a state where they have a “physical nexus.” In other words, if the business has a store, an office or even a single sales rep in your state, it’s supposed to tack the state’s sales tax onto your bill.

Online retailers like Amazon.com typically don’t add the tax, except in the states where they’re based or where they have physical facilities like warehouses or distribution centers. Amazon, for example, collects sales taxes only in Washington (its home state), Kansas, Kentucky, North Dakota and New York.

The tax is still supposed to be paid, however. And if the seller’s not responsible, then you, the buyer, are. In general, you’re supposed to voluntarily file your own report and pay the standard tax on your out-of-state online purchases. (The appropriate forms are available on state tax agency websites, revenue officials are happy to remind you.)

But it turns out that the vast majority of Americans are completely unaware of those rules, so the forms don’t get filed and the taxes don’t get paid — to the tune of $8.6 billion in 2010 alone, the National Conference of State Legislatures estimates.

Two quick thoughts:

1. Why have states waited so long to get on this? Perhaps they didn’t want to look like the bad guys while things were relatively good.

2. If more of these taxes are paid, what effects would this have on Internet commerce? There would still be benefits to Internet purchases: no need to go out to a store, often a lot more options, delivery to your doorstep. At the same time, would this help traditional retailers?

The results of incentives for movie production

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Michigan Avenue has been a battleground for several recent weekends as Transformers 3 filmed scenes. According to the Chicago Tribune, the producers were partly drawn by the financial incentives offered by the state of Illinois. Though the film will spend more than $20 million in six weeks in the local economy, the state will offer at least a $6 million tax credit.

Illinois is not the only state playing this game:

Illinois is among 45 jobs-hungry states tripping over each other to financially woo movies and television shows. About half, including Illinois, offer tax credits, which cut producers’ costs by tens of millions of dollars at the expense of state budgets.

The pool of rivals has doubled in the past four years, and the lures, for the most part, are getting fancier, with only a handful of states pulling back, either due to recessionary pressures or local scandals. A just-released study by the Milken Institute indicates that aggressive plays, by states as well as overseas locales, are cutting into California’s historical grip on the business.

The rest of the article contains arguments for and against such aggressive tax credits. Regardless, it seems that the tax credit game may become a race to the bottom where states eventually find there is little economic benefit to having filming in their backyard.

Even if the filming doesn’t bring in many jobs (as opposed to short-term work) or other lasting benefits, filming can certainly draw attention. The filming of Transformers 3 has attracted a lot of local media attention, perhaps raising the profile of Chicago and Michigan Avenue for viewers.