March 19th, 2010

Its broken, and no one has the will to fix it...

In the US, sales tax varies from state to state, and even from county to county (and possibly city to city, for all I know). Back in the dark ages (i.e. pre-internet), that was fine - each shop new its local tax rate, added it on to the bill, and charged you the final result. The end user didn't have to worry too much - well aside from the "sticker shock" - where you wind up paying more than the advertised price. Although I loath this tendency in the US, at least it applies to pretty much everything - you know that any time you see a price, there are going to be a bunch of hidden fees and extras.

Now even back in the dark ages, you could purchase things by mail order, and if you bought something from out of state - even if you bought it from a place that would charge a local resident Sales Tax - you got it tax-free. In theory, the purchaser was supposed to track all of those, and declare them to the State at tax time (assuming that they live in a State that actually charges sales tax). Of course, how can you trust the consumer to do this, when there are no checks in place? Big ticket items such as cars were handled separately, so it was hard (although possible) to get around the sales tax there, but It was pretty much a given that no one would voluntarily cough up the sales tax on out-of-state purchases.

So, zoom forward a few years, and we are in the golden age of e-commerce. A large percentage of purchases are made online, and that means the States are missing out on a large chunk of potential revenue. Some states, such as Colorado, are trying to make online retailers collect the sales tax based on the purchase location - to which the online retailers heartily object. Other states, such as my home-state of California, are pushing the consumer to do the work, and making threats to assist in the motivation.

In California, the "State Board of Equalisation" (though exactly what they are trying to equalise, I am not sure) has started a push to collect back-owed Sales Tax on out of state purchases. They're being smart about it, rather than going after Joe Consumer, they are starting off targeting businesses with over $100k in revenue, and making them fill in extra declarations on purchases. Unfortunately for me, I fall into that category, so I have just landed myself with a huge bunch of extra paperwork - going back through all my purchases for the last few years, and checking for any possible places where Sales Tax should have been paid, but wasn't. Of course, I am very meticulous, and keep good records, so it should be relatively easy for me to show where Sales Tax was already paid, and find any cases that might have slipped through the cracks. I can't really cry "unfair" on this, but it does seem a little tough - because Joe Consumer is unlikely to have kept the sort of records necessary to do this, he gets away with it. Well, for now, there's no telling whether the state might go after everyone next...

Still, putting the burden of this work on the consumer is ridiculous. So, what is the answer? Simple. One flat-rate sales tax, similar to VAT in Europe, that is collected by every single retailer. All prices would be post-tax, so what-you-see is what-you-pay (well, assuming we can get this horrible tipping thing wrapped into restaurant prices as well). Simple, clean, it would eliminate loopholes, reduce the burden of collecting the money, and increase the revenue. There would probably be some teething problems, as there was with VAT in Europe, but in the long run, it really is the only realistic solution.

Why don't I think this will happen?
 - Online retailers benefit by not charging sales tax, meaning they can offer a lower bottom-line price
 - Retailers benefit from hidden prices, to confuse the consumer as much as possible
 - The individual states (/counties/cities) either want to keep control of this revenue source (despite the fact that some of them are spending a fortune trying to collect on it), or want to keep the benefits they gain by collecting no sales tax.
 - Consumers would eventually wind up paying more, so they are not going to be excited about it.
 - Politicians are so beholding to special-interest groups, that they will take one look at all the above, and decide that their campaign contributions are worth more than fixing something that is so obviously broken. 

Please, won't somebody stand up and fix Sales Tax in the US???