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Online sales tax avoidance: It’ll end now that it hurts government

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POSTED July 16, 2012 11:47 p.m.

Congress is finally going to do something to stop killing jobs and bleeding local governments.

Democrats and Republicans alike are lining up in the Senate to speed up action on a bill to give states the authority to force online companies to collect sales tax.

It’s a complete turnaround from a few years back when Republicans were screaming it would effectively create a new sales tax while the Democrats said it would kill innovation.

What it really did was line the pockets of big corporations such as Amazon.com, eBay, and other Internet juggernauts that tend to contribute heavily to political campaigns. In other words, new tech plays the same games as old school corporations. It’s called influencing votes.

The game changer obviously was state governments. It was OK when the pass on sales tax was just hurting cities and retailers. But when states can no longer spend money like drunken sailors, the $23 billion in sales tax avoided annually by online transactions becomes important to them.

It does more than level the playing field between brick and mortar and online retailers. It makes everyone pull their weight for government services they use by not getting a pass on sales tax. What it won’t do is raise prices.

If you’ll notice, online retailers are typically 5 to 10 percent lower than brick and mortar businesses. How convenient. That is just about the range most sales tax falls into.

You’re probably thinking it’ll just force online prices to float up to brick and mortar levels. Guess again. Even with collecting sales tax, online retailers can still undercut brick and mortar types. Online concerns have a significantly lower overhead. They use fewer employees for the same amount of sales and they don’t need storefronts.

What will happen is they will have to cut into their grossly obscene profit margin made possible with the complicity of Congress protecting them for the past 20 years while online ate into retail jobs, eroded the sales tax base, and drove other concerns out of business. It’s a textbook example of Congress allowing the tax code to be manipulated to pick winners and losers.

What is likely to happen are online items will still be cheaper but not by large enough margin to necessarily make waiting several days for it worthwhile.

This is where Amazon.com once again proves they know how to play power politics. For years they led the fight against collecting online sales tax. And then a few years ago they started cutting deals. If a key state opted to push for the collection of sales tax online by finding a way to work around federal laws and court rulings, Amazon.com would cozy up to their government as they did with Jerry Brown.

The deals they cut were savvy. If you delay collecting online sales tax from Amazon.com for several years, they would build a distribution center in your state and create almost 2,000 jobs. It is exactly what is going on now in Patterson.

What makes this genius is that when online sales tax becomes the standard, Amazon.com will have been given the ability to put in more distribution centers that make same day delivery possible in key markets such as the Bay Area and Sacramento.

Amazon.com has basically dropped their opposition to online sales tax while gearing up with umbrella protection from states for several years to get the infrastructure in place to give them a leg up on other online competitors.

No one in Sacramento - or Washington, D.C., for that matter - cared about online sales taxes when it was only costing little guys their jobs and money. But the second big government started hurting, it was a different story. Then - in typical political fashion - governments cut a deal with a big player to give them the ability to position themselves in a manner that would hurt the competition.

Isn’t America great?

 

This column is the opinion of managing editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA.  He can be contacted at dwyatt@mantecabulletin.com or 209-249-3519.

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