Raising Your Taxes

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Circuit City has just filed for bankruptcy protection under Chapter 11. 

For those of you asking, “What’s a Circuit City?” Circuit City is a U.S. retail electronics chain.  It hadn’t been doing too well even before the recent downturn.  

For those of you asking “What’s Chapter 11?” it’s a form of U.S. bankruptcy where the company can reorganize and cut a deal with its debtors while remaining in business, as opposed to going out of business and selling its assets off to pay its debtors (FYI, that’s Chapter 7 bankruptcy).

Finally, for those of you asking, “Who buys at a store anymore?” it may shock you to find out the answer is “Most people.”

I must admit, my shadow hasn’t darkened too many malls or stores lately.  I could count the number of times I’ve bought anything computer-related, for myself or others, from a real store the last few years on my fingers, and have some to spare.  Why?  The prices are almost always higher, even after you include shipping charges from the onliners. 

Part of the reason why online buys are usually cheaper than store purchases in the U.S. is that sales tax is often not collected on sales made by out-of-state retailers without a physical presence in that particular state.  They don’t charge the tax, and while residents of a state are generally expected to self-assess themselves a “use tax,” let’s just say that people do that . . . rarely.   

The U.S. Supreme Court ruled in 1992 that it was up to Congress to decide if Congress wanted to make out-of-state retailers collect sales tax for all states.  Up to now, they haven’t done so, though there’s been a lot of background preparation for the day they’re ready to do so.  With the U.S. election over and the recession starting, it’s now a lot more likely Congress is likely to do just that for the following reasons:

1) A lot of states and localities get a big chunk of their revenue from sales tax, and recession means lower sales, lower sales tax revenues.  This will likely be even worse than in the past since more people are likely to shop online looking for lower prices, and taxes are a part of that equation. 

2) There’s more than a little rhetoric and sentiment out there that some people haven’t been paying their fair share of taxes, and while that talk has been centered on the wealthy, it doesn’t take a rocket scientist to figure out the likely political appeal of getting people paying no taxes on purchases to start paying like everyone else, especially when the choice is likely to be doing that or raising other local taxes even more.  

3) Stores who have no choice but to collect these taxes certainly would like a more level playing field, and probably will lobby for it if for no other reason than misery loving company.  While it’s hardly Newegg’s fault Circuit City went into bankruptcy, Circuit City will certainly at least argue that they’ve been handicapped by having to collect taxes, whether in the stores or on the Web, while a Newegg generally doesn’t. 

We’ll see what happens, but if you don’t like this idea, I think those opposed to the idea need to come up with better arguments than they have in the past.  Online sales are hardly an infant industry any longer.  Calculation of sales tax for a locality is merely a computer routine, I’m sure some interstate tax group would be happy to even open-source the code.  “I don’t wanna pay more taxes” is hardly a unique argument, but in the political environment today, the immediate response in today’s political environment will be, “Why should you go tax-free when others don’t?  That’s unfair.  What makes you special?  You pay shipping?  So?  That’s your choice, maybe you’ll buy locally a little more once the playing field has been levelled.”

So?  What makes online buyers so special?  Do you have better arguments than these?  If you do, please put them in the comments section.  They will probably be needed shortly.  

Ed

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