GOP Gov Bill Haslam Has A Really Stupid Idea


Tennessee’s Governor has decided that he, too, wants to tax the internet.

Gov. Bill Haslam said Wednesday that untaxed Internet sales are eroding Tennessee’s tax base and said he’s willing to take a leadership role among governors in urging Congress to pass a national approach to collecting sales taxes on goods sold over the Internet.

In other words, Haslam wants to push internet retailers out of his state, as even CNN points out that states that adopt such measures tend to lose tax revenues instead of the opposite.

In other states, such taxes have backfired, according to John Henchman of the Tax Foundation, a nonpartisan group that opposes the such taxes. Henchman has noted that tax receipts have actually fallen in Rhode Island and North Carolina as a result of the imposition of “Amazon taxes.” A big affiliate, FatWallet.com, fled to Wisconsin from Illinois after the latter state imposed such a tax, he notes.

I can’t confidently predict what would happen if such tax rules went into effect nationwide, but given the long-established truism that what you tax you get less of (even Democrats tacitly agree with this, given their support of cigarette and other sin taxes), I’d bet the results wouldn’t be pretty.

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About Conservative Wanderer

Conservative Wanderer is currently Editor-in-Chief of That's Freedom You Hear! That means anything that goes wrong can be blamed on him. Previously he was a contributor to the PJ Tatler.

11 responses to “GOP Gov Bill Haslam Has A Really Stupid Idea”

  1. 49erDweet says :

    I’m not asking for an internet tax law, but isn’t Haslam pushing for a country-wide use tax plan where the revenue goes to the state where the purchaser lives in lieu of sales tax? That would remove the incentive for companies relocating, etc., and if the rate were coupled to a state’s own sales tax percentage would permit public entities and agencies to recover income they at present do not receive. Each state would set the rate it feels it needs. as it already does with sales taxes, but the vendor inequity issue would be eliminated. What we consumers are doing now is stiffing our local governments and in most states – admittedly not all – that’s been a significant reason for their economic downturn.

    Don’t ask me how to do this, cause I’m skeptical it can or should be done. By the same token, it’s sort of like hiring a chef and then telling him he has to buy the food he’s preparing to serve you, and he must do it for free. If we want government services we must in some way pay for them.

    • Conservative Wanderer says :

      The problem is, what “use” are, say, Tennessee people making of the state’s resources if they purchase something from a company based in Washington and shipped from a warehouse in Kentucky? Perhaps the roads, for shipping, but that would be covered under the carrier’s fuel and road taxes, so why another tax?

  2. 49erDweet says :

    That’s a no-brainer. They’ve used the fire department to respond to a medical emergency at their parent’s home next door; they’ve used the police department to take care of the nuisance of a homeless guy going aggressively begging door-to-door in their neighborhood; they used the county’s planning department to check on some rural property they’re thinking of buying; they’ve relied on the state’s transportation department to keep the traffic signals working properly on the state highway running through town; all sorts of routine public activities require a governmental response. We can argue about the costs and natures of that response, but if they are to be done for the public’s benefit someone must pay the piper. For many decades local and state governments used combinations of taxes to do so. Untaxed internet purchases in those states have become extremely “revenue negative” – to use a bureaucratic term.

    Actually, here in CA there’s a place on the state’s income tax form to voluntarily provide that information and pay up. Every year we make an effort to comply, but we are probably not that accurate and we’ve been told by professional preparers that section is almost always ignored or zeroed out by their clients. So much for “voluntarily”. We don’t like it, but if we are honest we have to admit there is a problem.

    • Conservative Wanderer says :

      And those are all covered by existing property taxes, state income taxes (if any), and other taxes and fees.

      Bottom line: this is a money and power grab, and should be opposed.

    • PhyCon says :

      49erDweet:

      You somewhat correct, however, I must say the ‘system’ is actually already in place in every single state that has a sales tax statute. “Use Tax” is a ‘companion statute’ to sales tax and is almost always misunderstood by the general populace. Since I actually audit “Sales and Use tax” for my state I believe I may speak with some authority on the subject :).

      Use tax: basically if someone purchases something (tangible personal property), like a book, but does not pay ‘sales tax’ on the purchase “because the seller is ‘out-of-state'” then Use tax is due. You mentioned the Use tax line on your CA return. Personal use tax is by the ‘honor system’ in almost all cases. Since YOU are not a ‘licensed vendor’ the state has no reason to audit you. However, it COULD. (I believe CA has been looking into this as a revenue generator for them for a few years but has decided it would end up pissing off most of their population, increase the number of auditors they would have to hire, and end up being a net-LOSS for the state due to the salaries and benefits the new employees would require.)

      Here’s a simple example: You go online to XYZ.com and purchase a widget for $100. The company ships said widget to your home. They are not licensed in your state and, therefore, do not charge you any sales tax. (Read their fine-print and you’ll see a line in there that ‘all taxes are the purchaser’s responsibility’.) You SHOULD then remit the appropriate use tax % (usually the exact same as the local sales tax) to your state’s ‘revenue department in charge of sales/use tax’. Most do not do this (I have to since it would cost me my job if I didn’t).

      2nd example: You drive to Montana (no sales tax there) and buy a refrigerator. You then drive home and put that appliance in your home. You SHOULD remit the appropriate use tax to the state as above.

      3rd example: You drive to Nevada and buy the fridge and pay 4% sales tax on it, drive home, and put it in your house. Your local sales/use tax rate is 6%. You SHOULD remit the DIFFERENCE of 6%-4% = 2% to the state as the original 4% was a ‘legally imposed sales tax’.

      For even more ‘fun’…Google: “Streamlined Sales Tax” and enjoy reading some of the crap I get to deal with :p

      CW: Sorry, my friend. What the Gov is doing is actually already “law” in every state that has sales tax. The problem is the lack of education of the populace and willfull disregard of ‘out of state’ or ‘online’ business entities. Practically every accountant that deals with sales tax also knows use tax.

      • Conservative Wanderer says :

        PhyCon, love ya like a brother, but on this one you’re flat out wrong.

        See Quill vs. North Dakota, where it specifically says:

        2. The State’s enforcement of the use tax against Quill places an unconstitutional burden on interstate commerce. Pp. 9-19.

        Therefore, states can’t collect use taxes without a physical nexus or presence in the state.

  3. PhyCon says :

    You are correct that the VENDOR (seller) cannot be held responsible for collecting Use tax according to that decision. However, the PURCHASER (end user) ***IS*** held responsible for the Use tax. I know that decision much better than you since it has dominated Sales&Use tax auditing since it was decided.

    The case is mostly about “NEXUS” and what that requires. Nexus in my state is, “any presence” in the state. That phrase is amorphous enough…does ‘one sales trip by a salesman’ consitute Nexus? Does one advertisment into the state consitute Nexus? Those argument can be held in a court of law. However, the audits I have performed have always picked up (read ‘assessed’) Use tax in the 3 examples I’ve given above. Streamlined Sales Tax has changed the way Use tax is applied for vendors registered with the program. It has NOT changed it for those who are not. The main change was in the “sourcing rules” which mean ‘where did it come from and did the vendor know anything about where it was going’.

    I am very sad to say this, CW, but you need to re-write your comment above to “you are right PhyCon” :p

    PS: When we saw a “Quill” folder in an auditee’s files it meant “instant assessment”! The same was true for “Viking Office Supplies” and several others that NEVER charged sales tax. Both Quill and Viking don’t ‘exist’ anymore because they were bought out by a compliant business :p

    • Conservative Wanderer says :

      Okay, let’s unpack this. How are you going to enforce it against the purchaser?

      Are we going to have state revenue agents following UPS trucks around, looking for Amazon boxes? And if they see one delivered, are they gonna go knock on the door… “Excuse me, ma’am, I see you received a package from Amazon. You need to pay a use tax on that… let’s see… 3 books at $7.99 each, that’s $23.97. Tennessee use tax is 7%, so you owe the state $1.68. Will that be cash, check, or credit or debit card?”

      Or, I suppose they could try sending out letters, but how are they going to track who’s getting shipments from online retailers? UPS or FedEx don’t, as far as I know, have to reveal what’s in the boxes–they usually don’t even know themselves–and attempts by states to get records from online retailers like Amazon have not been successful either. So, again, how to track who’s buying online?

      Put baldly, the enforcement costs would almost certainly far outstrip the revenue if it was pursued against the purchasers.

      Just because something is legal does not mean that it’s feasible, or even that it’s a good idea. President Obama’s so-called “stimulus” bill was perfectly legal, I don’t think either of you fine gentlemen will consider it a good idea, tho.

      • PhyCon says :

        See my response to 49erDweet regarding “personal use tax” being on the “honor system” (interesting that most Americans don’t find paying personal use tax honorable, eh?) and the parenthetical CA sentence. All the gov SHOULD be doing is trying to increase membership in streamline…

        However, Streamlined Sales Tax WILL take care of the issue…as soon as all US states adopt it. That probably won’t happen for another 10 years or so but it is going to happen. As usual, though, the wonderful interjurisdictional agreements will always leave a few thousand loopholes like the ‘exemption certificate’ fiasco that’s been adopted already in the agreement. Basically, auditors have to accept exemption certificates in whatever form they come in PLUS have to give the company 120 AFTER initial notification to provide ‘more’ if needed. Yep, streamlined is a wonderful concept but it’s implementation works as a typical ‘gubermint’ program…but with a hell of a lot more gubermints and quasi-gub entities involved. My state has realized a significant influx of taxes thanks to the program but the loopholes, once advertized sufficiently, will allow for plenty of wiggleroom.

        It’s a double-edged sword…though it may alleviate some larger assessments in sales/use tax audits down the road.

        Sufficiently unpacked for you? :p

        • Conservative Wanderer says :

          You referred to the “company” regarding the waivers… but you admit that the Quill decision makes it illegal to pursue enforcement against the vendor. Does that mean that you admit that they’re not going to find it economically feasible to go after the individual purchasers… which is my point?

          And consider this… we, as conservatives, already complain about the regulatory burden on companies being a drag on the economy and job creation. Do you really think that adding this sort of thing isn’t gonna have an effect on those?

          And consider also the public mood on taxes… I wonder if Gov. Haslam is gonna go into his next re-election campaign saying, “I tried to raise taxes on those eeeeeeeeevil small businesses that are buying things from out of state”?

          I go back to my original point… it’s a really stupid idea.

  4. PhyCon says :

    It’s not a ‘stupid idea’. It’s already the LAW in any state that has sales/use tax statutes. Again, see my parenthetical CA portion to 49erDweet on the feasibility of going after each and every purchaser. As for companies, large or small, if they are selected for audit they WILL be assessed the use tax on out-of-state non-taxed (or partially taxed) purchases. This is the NORM today. Accounting systems that are set up on ‘accrual basis’ MUST have use tax accrual included for them to be compliant. If they don’t then whoever set it up is going to be in for a rude awakening when a company sues them for negligence (which has happened more often than anyone realizes). Use tax on the personal level (you, me, 49erDweet, etc) is ‘enforced’ by the honor system. The individual is SUPPOSED to report to their appropriate taxing authority when they purchase items that are either not taxed or not taxed ‘enough’ when purchased ‘out of state’ (this includes internet purchases).

    Use tax is a ‘field leveling’ tax. Consider this scenario: You live in a town on the border in Idaho right next door to Montana. Montana doesn’t have sales tax. You do ALL of your shopping in MT, bring the items back to ID, and utilize the stuff there. The merchants in your town have an unfair disadvantage with the merchants across the border in MT because they HAVE TO COLLECT sales tax on their sales. You are supposed to report and remit to the ID DOR the value of your tax-free purchases in MT and send them a check for the associated use tax. That, my friend, is the LAW. The issue is that use tax is applied to the individual based on the “honor system”. Individuals tend to want to pay as little as possible for whatever they purchase…and sales tax adds to that amount. If one can buy it ‘tax-free’ then one, in general, will…the LAW be damed (of course, very few ‘individuals’ actually know/understand use tax law…but ignorance of the law is no excuse, right? :p)

    (here’s my dissertation)
    I do not “admit”, CW, I “agree”…as long as the seller does not meet the Nexus definition of the taxing jurisdiction. The most recent big blowup has been with web-site owners having ‘click-me’ links on their sites and getting small kick-backs from places like Amazon.com for having their widget drive customers to them. In my state this situation, because of the definition of Nexus (as-yet unchallenged in state court), constitutes “any presence within the state” and creates Nexus for that vendor because the individual site-owner is acting ‘on behalf of’ and/or ‘as an agent of’ the vendor. I believe if that definition were to be challenged in our courts the state would lose the case because the definition is simply ‘too much’.

    With respect to ‘waivers’ and ‘company’…individuals also provide exempttion certificates, not just companies that resell or are otherwise ‘tax-exempt’ for sales tax purposes. The problem with these exemptions wrt streamlined is the rules that have been adopted basically make them useless for audit purposes. We still HAVE to ask for them…but they can be provided via almost any medium and contain as little information as simply a name (doesn’t even have to be a real name, for that matter). However, eventually this will lead (this is already going on) to the creation of databases of exemption certificate claimants which will be shared between taxing jurisdictions via the Multi-state Tax Commission (MTC)…the MTC does audits for many jurisdictions at once, generally via statistical-random sampling techniques. Once this happens ‘enough’ for any single exemption claimant there will be fraud investigations…and it won’t go well for the fraudster(s).

    However, Streamlined Sales Tax is the mechanism that will make this entire discussion moot…as soon as all states have joined. If memory serves, TN is a member of Streamlined. The Gov may or may not realize what is actually going on with the program but it will eventually REQUIRE all vendors (sellers, companies, etc —*** yes, this will eventually be applied to your local garage/yard sales too 😦 ***— ) to collect Sales tax on their sales to end users (purchasers). This means there will no longer be a ‘need’ for use tax statutes…unless the sales come from outside the country. In that case it is up to the feds and import/export/customs/etc to levy the appropriate taxes/fees/tariffs/etc. I, personally, do not like the Streamlined Sales Tax program as it is moving the US, slowly, towards a ‘one-world sales taxation’ system. The agreement is rife with loopholes and exquisitely ambiguous language.

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