Tags: online | sales | tax | wayfair

Economic Impact of Online Sales-Tax Ruling Will Linger for Years

Economic Impact of Online Sales-Tax Ruling Will Linger for Years
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By    |   Monday, 25 June 2018 07:07 AM

The recent decision by the Supreme Court in South Dakota v Wayfair will result in immediate alterations and hold promise for long-term changes to the national tax landscape.

Many, if not most, articles and comments on the ruling say that it’s a winner for either the states or for the taxpayers.

But not both.

That zero-sum approach game to tax requires the assumption that for one side to win the other side needs to lose.

But tax is always a cost to the taxpayers and always impacts behavior.

The states are going to spend money and will either get the cash needed from tax or borrowing. And borrowing power is in no small measure also dependent on future sources of tax revenues.

When it comes to the tax game, neither the taxpayer nor the government is ever a winner. 

Overlooked in nearly all the analysis of this Supreme Court case is the fact that trying to distinguish the income tax from a sales tax, one being on income and the other being on consumption, is foolish.

All taxes are ultimately a tax on consumption.

Local and multinational businesses which sell goods or services build into the cost of their product or service the amount of tax they pay.

Every business needs positive cash flow after payment of tax to survive.

Consequently, no matter what form the imposition of tax on business takes, the price of the goods or services sold to and paid by the consumer includes the total burden of tax on business.

Effectively, where the customer buys their products or services is where the sale takes place.

The only difference between brick and mortar retail stores and online sales is the mechanism by which the buyers pay for the goods and services.  The cash that goes into the economic system and benefit of receiving the purchase always starts with the customer.

Is there any difference between a shopper buying a shirt in a store, or buying a shirt in the store and having it mailed to the buyer, or buying online and having it delivered?


The benefit to the public of a sales tax system is that the consumers know exactly how much the government is costing them.

The government, of course, would prefer that people be kept in the dark as to what the real total tax they are paying.

An errant assumption about buying over the internet is that the avoidance of sales tax is a primary reason people buy online.

Is that even close to being true? Will masses of people stop buying over the internet because they are suddenly going to be paying a sales tax?

While speculative, the likelihood of diminished online sales because of being charged a sales tax is small—perhaps statistically insignificant.

Other considerations are important to consider.

What about the complexity of accurately charging and collecting all the different state and local taxes.

An interesting question but not much of a problem. Computer programs which can efficiently and accurately calculate all taxes are already available.

As for payment and compliance, as states enact legislation to comply with the Wayfair ruling, they will likely have payment to one state-run computer which, after taking their cut, then pays out to each local government authority and issues all necessary returns and reports.  

As the public gets used to the ease and transparency of a national sales tax system, it is a small next step to replace the federal income tax system with a national consumption tax.

Imagine a tax system which is easy for the taxpayers to comply, simple for the government to administer, fully transparent, and the tax impact is equal.

A form of pay-as-you-go tax system.

While no tax system can be said by taxpayers to be good, a national sales tax system is unquestionably the least bad.

The immediate impact of Wayfair v South Dakota is readily discernible; the long-term effect could well be dramatic.

Denis Kleinfeld is known as a strategic tax and wealth protection lawyer, widely published author and creative teacher.

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The immediate impact of Wayfair v South Dakota is readily discernible; the long-term effect could well be dramatic.
online, sales, tax, wayfair
Monday, 25 June 2018 07:07 AM
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