Internet Sale Tax in the Senate

[JDog]

I'm just curious if there are BOTL out there that know more about this topic.

It looks like the idea of an internet sales tax is in the Senate. See below link:
http://online.wsj.com/article/SB10001424127887324493704578432961601644942.html

Each state and localities have different tax systems. It sounds like there are software companies out there that help online merchants determine how a tax should be applied based on the commodity/product and where it is being shipped.

I honestly don't know how this type of law will apply to an online cigar retailer like Cigar International, NHC, etc.

I can imagine that the bigger online cigar retailers will figure it out. I would think that smaller retailers may just pull-the-plug on their internet storefront, since they likely have a B&M that supports the majority of its sales. Apparently, the legislation attempts to "[spell] out when a merchant is liable for errors and when a software vendor takes the blame." If you're a smaller player that sells less than 10% of your total cigars sales on the internet, why take the risk?

Again, I'm curious if there are BOTL that know more about this topic and the potential impact to online cigar retailers.

 

[pbibby]

Not sure about the specifics, but you're right, smaller companies will just pull the plug and not take the risk. The IRS has been trying to gather more revenue from online sales for awhile now. They even have a place for you to declare Internet purchases on your taxes. (sales and use tax). Point being, eventually every online retailer will charge sales tax and report it to the IRS.

Sorry for the rambling, hope that helps a little....

Sent from my Samsung Galaxy S3 using Tapatalk 2 because, you know, I love Tapatalk 2.

 

[CAJoe]

It will happen one way or another. The government wants to raise as much revenue as possible and this would raise an incredible amount.

 

[Herfin' Harg]

I know a lot about this...

 

[JDog]

I know a lot about this...

Well, you're not going to say something unless someone paid you for your time... damn lawyers.

I understand why the government wants to implement an internet sales tax.

How will the various implementations of a cigar-like tax affect the sales of cigars over the internet? For example, I only pay a simple sales tax in Pennsylvania when I make a cigar purchase (7%, I believe). In Illinois, different taxes apply. I travel enough to know that each state handles the taxation differently. If I understand this legislation correctly, if I buy cigars from Tobacco Grove's website (physically located in MN), they will apply the Illinois cigar related taxes to my bill since I live in Illinois. It can get even more complicated if you live in a county with different taxation practices. Am I understanding this bigger picture correctly?

Finally, if I was a retailer with a B&M and an internet storefront.... how difficult will it be for me to manage these taxations? Is there software or a web service that manages these challenges? You can look at this as a threat to our online retail options, I guess. I buy nearly all my NCs from B&Ms, so I'm not worried about it.

 

[Hoshneer]

This will probably help the small B&M shops right?

 

[MoJo]

This will probably help the small B&M shops right?

I think it depends, if it works the way JDog is guessing then it's going to hurt the people living in states with high tax on cigars, since you will be stuck paying those high taxes regardless and will probably buy less cigars because of it. But, if that is the case, those people might end up buying more boxes from their local B&M. If those small B&M shops depended on any extra income from an online storefront, it might hurt them from losing some of those extra sales or the cost to implement the changes will probably hurt the smaller stores more.

tl;dr - IMO, maybe lol

 

[Craig Mac]

Couple things. If a B&M has an e-commerce site they likely will just have to assign tax values to the state selected in the shipping address. The software should be able to handle that no problem. They likely currently have it set up so out of state is 0% and in state is xxx%. I honestly don't think it will be a game changer for the smaller shops like suggested.

That said, and addressing Rex's post.... It will help the local B&M's because the playing field will level a bit with the "online only" shoppers not getting that huge savings from the discounters with no tax/shipping.

 

[Herfin' Harg]

Well, you're not going to say something unless someone paid you for your time... damn lawyers.

Nope... Just gotta make sure I drive traffic to my blog. :grin:

 

[JDog]

Couple things. If a B&M has an e-commerce site they likely will just have to assign tax values to the state selected in the shipping address. The software should be able to handle that no problem. They likely currently have it set up so out of state is 0% and in state is xxx%. I honestly don't think it will be a game changer for the smaller shops like suggested.

That said, and addressing Rex's post.... It will help the local B&M's because the playing field will level a bit with the "online only" shoppers not getting that huge savings from the discounters with no tax/shipping.

Thanks Craig. It's good to hear that it will not be a big deal for retailers to implement.

The article threw out a statistic that surprised me at first, but after thinking about it seemed reasonable - there are an "estimated 9,600 state and local taxing authorities." I honestly don't pay too much attention to the tax applied to my cigar purchases when I travel. I buy a few cigars because I'm going to smoke in their establishment. I know there are differences.

I guess for an online retailer that sells mostly a single product. ike cigars... they can easily implement the appropriate tax. The nuances between the "tax authorities" isn't as complicated when you're only talking about a single product. Interesting though...

 

[Craig Mac]

I think most retailers that sell out of state have seen this coming J-Dog. Implementing the changes would just be a "cost of doing business". It may take away some shops that do phone sales out of state, but I don't see it as a concern for those that have an e-commerce site attached to their B&M.

 

[MoJo]

I think most retailers that sell out of state have seen this coming J-Dog. Implementing the changes would just be a "cost of doing business". It may take away some shops that do phone sales out of state, but I don't see it as a concern for those that have an e-commerce site attached to their B&M.

any loophole that you know of (and can talk about) that could help the people who live in states with high taxes on cigars?

 

[RacFocus]

I think most retailers that sell out of state have seen this coming J-Dog. Implementing the changes would just be a "cost of doing business". It may take away some shops that do phone sales out of state, but I don't see it as a concern for those that have an e-commerce site attached to their B&M.

any loophole that you know of (and can talk about) that could help the people who live in states with high taxes on cigars?

Drive to a state with lower taxes, or find a friend in a lower tax state who can buy them and send them to you. Assuming the difference in price is enough to deal with the hassle. Not a perfect solution by any means I know.

 

[timj219]

any loophole that you know of (and can talk about) that could help the people who live in states with high taxes on cigars?

Does the legislation specify just sales tax? Or are tobacco and other "sin" taxes covered too? I can live with the sales tax but if I have to start paying the astronomical tobacco taxes for my state that's going to hurt badly and probably justify some travel.

 

[CAJoe]

The other loophole will be out of country warehouses. This already happens with ISOM's and will have to start with other cigars to sell to high tax states like CA and NY.

 

[POTOB]

This will probably help the small B&M shops right?

I think it depends, if it works the way JDog is guessing then it's going to hurt the people living in states with high tax on cigars, since you will be stuck paying those high taxes regardless and will probably buy less cigars because of it. But, if that is the case, those people might end up buying more boxes from their local B&M. If those small B&M shops depended on any extra income from an online storefront, it might hurt them from losing some of those extra sales or the cost to implement the changes will probably hurt the smaller stores more.

tl;dr - IMO, maybe lol

As a CA native (pretty high taxes) I think this will definitely have an effect on how much I buy. The taxes here are pretty steep, and buying online allows some freedom to get some relief from that.

Typically I buy my boxes online and singles at B&Ms. That way I am still supporting my local shops but getting some relief on the larger ticket prices.

I'll be watching this closely...

 

[smokinghole]

After reading a different blog posting about Fed.excise taxes on beer, here is some angering food for thought. If or should I say when, this is implemented the sales tax we all pay in the state is based on the price of the product with any and all "sin" taxes added as an inseparable part of the price. So that $2 cigar that becomes much more due to excise and SCHIP taxes. Then you get to pay any state tobacco taxes based on the new price of the product that ad the Fed taxes added first. Then finally you pay a sales tax on top of the taxes that were based on a taxed price in the first place. So you end up paying taxes on top of taxes twice.

Can someone explain this strange feeling I am having? It feels like someone is always in my pocket and screwing me at the same time.

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[veeref]

I've already found out the hard way that my state pursues out of state tobacco purchase for tax purposes.

I believe that if the savings are significant, we might see retailers setting up shop out of the country to avoid this altogether.

 

[KGD]

This isn't likely to go anywhere. Republicans control the house and are adamently opposed to this.

Furthermore, sales tax is collected by state entities. Here in California, it's the board of equalization. Out of state companies have no means in the status quo or standard procedures, to pay sales tax collected to 50 different states, varried per month by sales. This is one of thousands of complications that prevent the collection of taxes from online purchases for most retailers. This is the same reason taxes haven't been collected in most cases for mail order purchasses from catalogs etc. since their creation.

However, status quo has always been that you're not void of paying sales taxes due to buying on the internet, just that you are responsibile for indepently paying the sales tax to the body in charge for your state.

It's touchy ground between states rights and federal rights of inter-state commerce, but ultimately you'll only see this take place at the state level, state by state, and with large retailers only.

As long as the GOP holds control of any house/branch of government, there will be no greater regulations imposed on online taxes by the federal government.

 

[Herfin' Harg]

I truly meant to come back and post more on this, and I will, but I just haven't had the time over the last couple days.

Long story short, current iteration is only going to appear on your invoice/order confirmation as you'd expect to see your local sales tax on a receipt for a product/service posted locally.

Most "sin taxes" are levied against goods when they come into a state/county/municipality at the distribution level. These sorts of things are figured into the pre-sales-tax price, and you don't see them "added on" at the register. This is (at least, generally) going to be outside the ambit of this bill, as far as I am aware.

One of the points the legislature is fighting about presently is the threshold of sales required before this law will apply to a particular vendor. Last I read it, the threshold was $1M in sales per year, but it's starting to sound like that may go as high as $5-10M so as not to unduly burden small business owners (think ebay "store" merchants).

More later.