Internet businesses should pay sales tax

Update (15 April 2011) : O.k. boy did I miss the boat on this one.

As as been pointed out in a series of comments on techcrunch ( I would post the link to the techcrunch post except with facebook comments I can’t use google to find the comment thread any more),

  1. No business pays sales tax for the goods they sell, businesses just collect sales on behalf of the taxing agencies.
  2. Services such as taxcloud make compliance trivial with a in-the-cloud API service
  3. States are working to stream line the definitions of what is subject to sales tax, so compliance is further simplified.
  4. Internet companies are not being asked to pay taxes to states and local governments that they don’t use.
  5. Internet companies are being asked to collect sales tax from the consumer who does use the state and local government services.

Therefore sales taxes ARE being paid by the beneficiary of the person/company being taxed – the person recieving the goods is the person paying the tax. Amazon’s refusal to collect a tax that Amazon is not actually paying is now even more galling. Amazon suffers no financial impact except to connect with a service such as taxcloud, adding the sales tax to the purchase and then sending the tax collected quarterly to each of the 50 states. So a company the size of Amazon is whining about 200 extra checks a year having to be sent? Get over it, Amazon and collect the tax already! Or is Amazon’s business model so fragile that it can’t take the hit?

Original post in which I fall into the trap of thinking that Internet businesses are paying sales tax:


Once again Internet VC’s just don’t get the real world. Brad Feld is of that “illustrious crowd” with his latest post

(Update: Sometime I need to take a breath before I post antagonistic sentences like the above, especially since I do not know Brad. In my defense, I have dealt with a long list of technophiles that think the solution to every problem involves more technology. These same technophiles don’t spend time to understand the needs of people who are tech-indifferent. But since I don’t know Brad personally, I can’t say that for certain about Brad. However, Brad’s statements that I quote below lead me to believe he is a technophile who does not understand technophobes or techno-indifferents.)

it’s just evidence that organizations like Downtown Boulder, Inc. don’t really understand the actual business economics of having a vibrant entrepreneurial community in their downtown.

This is an interesting statement about an organization that existed for businesses before the internet. Suddenly, Downtown Boulder, Inc. “doesn’t understand business and entrepreneurial communities”? How incredibly egotistical! Has Brad ever tried to understand a business in Boulder? Has he even run (or worked in) a brick and mortar store? Rather than try to understand the businesses in his own community – Brad feels like he is privileged to lecture them?

I would be willing to bet that Brad enjoys the Boulder community and downtown created by Downtown Boulder, Inc. Brad is in Boulder because of their work, not the other way around.

Lets look at some of the events listed on the DBI website:

  • Winter Sidewalk Sale
  • Fashion Under The Flatirons
  • Tulip Fairy & Elf Parade
  • Taste of Pearl
  • Bands on the Bricks
  • Noon Tunes
  • Open Arts Fest
  • Fall Festival
  • Munchkin Masquerade
  • Switch on the Holidays
  • St. Nick on the Bricks
  • Lights of December Parade

Under, First Fridays, this organization is clearly giving back to the community:

Boulder Creative Media-Plex – 1906 13th Street Suite 101 (downstairs)
1/2 block off the Pearl Street Mall

First Friday January 7th, 6 – 9pm: Art for the People – The art of ZMA, The Art of Sexy

Boulder Community Media (BCM) is a Colorado based 501(c)(3) organization dedicated to democratizing media and making it accessible to all. BCM provides artists of all ilks opportunities for the community to see their work.
BCM provides the Boulder Creative Media-Plex as a 5,000 sq ft venue in downtown Boulder for digital and visual artists to convene and collaborate.

Where is Foundry mentioned? So Brad bitches about the Downtown Boulder, Inc. but yet, DBI is creating a community and Brad Feld is contributing ….nothing…..

Why should DBI listen to him? Brad contributes nothing and offers little.
Pop quiz: Did the great Boulder downtown attract Brad or did Brad create the great downtown?

Continuing Brad Feld’s self-imposed victimhood,
Brad doesn’t bother to understand taxes

There is no basis for amazon paying state sales tax as they don’t use
any state or local resources! Presumably thats what the sales tax is
for, not to protect local merchants.

Excuse me?????

Brad, here is a partial list of local resources that Amazon directly BENEFITS from:

Amazon (and all other internet based stores) do use and depend on local resources to be able to sell:

  1. The highways and airports used to deliver the goods ( contrary to popular myth, gas taxes only pay 51% of the road system cost). Poor roads increase deliver cost and decrease both reliability and timeliness.
  2. Police protection: (paid for in part by sales tax!)
    1. Amazon is getting the benefit of police protection of the shipment. Quite simply, Amazon can ship something and have reasonable certainty that the package will in fact arrive.
    2. If the package is stolen enroute, Amazon gets the benefit the Colorado legal authorities will investigate the robbery.
    3. If Amazon shipment is robbed, the Colorado prosecutors will actually pursue an arrest and conviction.
    4. Fraud protection and prosecution
  3. Fire protection
    1. The distribution warehouse used by Amazon shippers meets fire code regulations. ( local Colorado tax dollars at work. )
    2. If there is any sort of fire, the local fire department will be available to put the fire out. ( no tax dollars, no firemen )
  4. a reliable electrical infrastructure
    1. its hard to for customers to connect to the Amazon website if the power keeps dropping out.
    2. electricity is produced in power plants which require their own fire/police protection
    3. power plants produce pollution. Or maybe Brad would like some dirty brown clouds (Colorado gets most of its power from coal-fired plants)
  5. garbage /recycling systems used to process the packaging waste products
  6. the e-waste problem from the batteries and printed circuit boards.
  7. the brake dust and smog generated by the UPS delivery trucks

Take any of these benefits away and Amazon’s business falls apart.

Some basic rebuttals to some counter-arguments:

  • The shipping company (UPS/DHL) pays taxes “on behalf of the shippers” and therefore Amazon shouldn’t have to:
    1. This argument moves the goal posts. The question is does Amazon derive any benefit from the local services and resources. Any taxes UPS pays is irrelevant to the question of Amazon’s benefiting from the local Colorado taxes.
    2. The shipper does not care too much about fraud. Amazon shipping something to a Colorado business or resident and then not getting paid is not UPS’s problem. The package was delivered, UPS expects to be paid.
  • Amazon only uses services that would be already supplied. This relies on the “single drop of beer” argument. ( A guy goes into a bar and asks the price a drop of beer. Bartender: ‘free’. Man: please fill my mug with drops of beer.) The reality is the individual effect may be small but everyone needs to contribute to the commons otherwise we have the Tragedy of the Commons
  • Amazon should only pay for an (itemized list) of local services that it directly uses. Really? Quick.. list every government service that you and your family use…. Did you remember:
    • Police
    • Fire
    • County Weights and Measures – the people who make sure that a gallon of gas is not 7/8 of a gallon
    • Water and Sewer – or do you prefer outhouses
    • Planning departments – or maybe it is o.k. if the house next door is replaced with a 30-story office building?
    • Parks and Recreation
    • Public Schools – yes I am sure your kids go to the best private school. If it helps to think of public schools as a place to store other peoples kids so they are not robbing your house, feel free to.
    • Courts
    • Prisons
    • Highway department
    • Search and Rescue

How about if the internet companies stop feeling so entitled and started contributing?

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5 Responses to Internet businesses should pay sales tax

  1. Brad Feld says:

    Patrick, you clearly don’t know me. I’ve lived in Boulder for 15 years and have contributed a significant amount of my own personal money to non-profits in Boulder over the years. So – attacking me by saying “Brad Feld is contributing ….nothing…..” makes no sense to me and just sounds like random vitrol spewed by someone who disagrees with my point of view (which is fine, btw) but doesn’t bother putting in the effort to actually have useful context on the discussion.

    I responded a little more thoughtfully to your comment on my blog about community. I don’t really feel like engaging in the sales tax argument – Colorado passed HB 10-1193 so that’s old news at this point. I’ve said my piece on it and when the dust settles and someone totals up the change in tax revenue (which I think will be very difficult to do accurately) I’d assert that the net tax revenue collected will be negative and the impact of HB 10-1193 will be to hurt the aggregate business community in Colorado, which is presumably opposite of the goal of the state tax authorities.

  2. patrick says:

    @Brad — “you clearly don’t know me”.

    That may be the case. However, you do make the same broad brush assertions about the DBI and its members:

    “They just don’t get it”.

    “No reason for Amazon to pay”

    So it is clear that you haven’t talked to them and you don’t know their memberships concerns and needs.

    Find out why they feel the way they do.

    WRT “net tax revenue be negative” – Did you check with the Colorado Department of Revenue ( http://www.colorado.gov/revenue )? Did you filter out all the other factors that can affect revenue ( recession, population shifts, census hiring, etc?) Its hard to prove this correlation.

    Furthermore, this same argument of “OMG raising taxes will decrease revenue and ruin the economy” raised every time some business faces a higher tax bill. Every business claims catastrophe if they have to pay a penny more.

    If this “taxes is bad for the economy”, then please explain how the economy was booming under Clinton who raised taxes. Furthermore, explain how come the economy tanked under Bush the lesser who slashed taxes (for the well-off).

    If taxes are so bad, the economy should have tanked during Clinton.

  3. patrick says:

    My longer reply at:

    O.k. So you are so involved you didn’t even know about a CBA like DBI even though is clearly a central driving force behind the Boulder downtown that you enjoy.

    I notice that you paint them as “old” businesses. Or say that the owners “just don’t get it” seems like a stereotype labeling. If you don’t like my stereotype labeling, then you shouldn’t use stereotypes yourself.

    So you talked and the business owners said they liked your talk. I hoped you listened to them as well. Did you take the time to understand their issues and their fears and even their day?

    Some of the things I have found in my research:
    1) downtown business owners know way more about marketing than a bushelful of internet marketing types (some times they don’t realize how much they know).
    2) downtown business owners have a greater sense of place and community that a tech company which occupies space in a building.
    3) retail businesses know how to personally sell in a way that puts internet companies to shame.
    4) A single coffee house adds way more to a *community’s sense of self* that all the self-absorbed tech companies. A coffee house survives only because of its community that it invites into the business. A tech company is indifferent to its community which it excludes.
    5) A small business owner works hours that would put a tech company to shame. (6am-10pm in some cases)
    6) A small business owner is the point person in a way that a tech CEO only pretends to be.
    7) A small business owner relies strongly on the community to survive and thrive. (The phrase “Location, location, location” – is life or death for a retail business. Not at all important for a tech company.)

    Quick question: A tech company can have virtual workers – can a coffee house or a restaurant?

    You are also very proud of the money that you have brought into Boulder. That is easy. Giving money (which you have lots of) requires no sacrifice. I challenge you to give of yourself and to listen and understand.

    Please stop being very dismissive of people who have sacrificed a great deal for their business and work just as hard as the tech. They are not stoopid. They know what makes for a great downtown community because they have built one.

    If Foundry Group threatened to move to another city, would Boulder really care? I dare say there would be more concern about st. julien hotel and spa ( http://www.boulderdowntown.com/go/st-julien-hotel-and-spa ). How much revenue does the hotel (and its visitors) generate for Boulder v.s. Foundry?

    Finally, to your dismissal of the vast majority of my post:
    “I believe it ignores basic economics of local economies and how they work and instead focuses on a protectionist argument for local businesses.”

    Really?

    From http://www.boulderdowntown.com/lovethelocal:

    “For every $100 you spend at Boulder stores, you pay sales taxes for these city services:

    47 cents for police protection and services

    23 cents for fire protection and services

    60 cents for transportation (maintaining and improving streets, sidewalks, and bicycle paths)

    10 cents for library services”

    Sounds pretty protectionist to me, nothing on that list I would pay for… the taxes must be there purely to featherbed someone’s slush fund.

  4. Moss Parker says:

    I was about to make an on-line purchase from a Colorado based company. When I got to the final screen I noticed they were collecting tax. I was pretty confident that the company (Webroot) had no nexus in Florida and by Florida law are not forced to collect Florida sales tax. I called them to verify that they were located in Colorado and did not have a nexus in Florida and that the only reason they were collecting the tax was compliance with Colorado’s law imposed when HB 10-1193 was enacted. When I found that was the case I decided not to make the purchase. Webroot lost the sale and Colorado lost the income tax residual. I will continue to boycott internet vendors who are located in Colorado until this insane law is nullified. That law has put Colorado vendors at a disadvantage.

  5. patrick says:

    @moss –

    ah the righteous indignation, “how dare you have to pay for those lazy Coloradoans?”

    You really should buy from Canada or some place overseas. Of course be sure to never buy anything local to avoid having to pay local sales tax.

    You could always go Galt and refuse to work – thus avoiding all taxes.

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