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California Targets Amazon.com at the Expense of Local Businesses
Online companies have seen their sales surge despite a two year economic slump. Amazon.com alone saw worldwide sales jump nearly 30 percent in 2008 to $19 billion and to $24 billion in 2009. This upward trend only continued in 2010. Brick-and-mortar retailers did not fare as well. They, along with National Retail Federation and many state legislators have back lashed against this success claiming it is predicated on the fact that Amazon “skirts” state sales taxes. They claim Amazon under cuts in-state retailers and strips state coffers of revenue. In response, Legislatures across the country are trying to skirt Supreme Court rulings to levy taxes on companies operating outside their borders.
The most recent attempt comes from high-tax California. Assemblywoman Nancy Skinner recently re-introduced a bill (AB 153) that would require out-of-state companies with in-state advertizing affiliates to collect and remit sales taxes it supposedly owes the state. She estimates the state is being shortchanged between $250 and $500 million.
The kicker: Amazon is not doing anything wrong. According to the U.S Supreme Court ruling in Quill Corp. v. North Dakota, companies are only required to collect state sales taxes from their customers when they have a physical presence in the state (state-based factories, warehouses, employees, etc. conducting general operations). Amazon currently passes this “physical presence” nexus as it is headquartered in Seattle, Washington and has warehouses and facilities considered legal entities in Kansas, Kentucky, and North Dakota. Only residents in those states pay taxes on Amazon purchases.
Quill cited the commerce clause in its ruling, arguing that if enacted, retailers would need to track a myriad of state and local sales tax rates (about 8,000) which constantly change. Facing these new barriers to entry online companies simply end their in-state affiliate programs. For example, in July 2009 Rhode Island included an affiliate-nexus tax in its budget. Amazon.com severed formal ties with all Rhode Island businesses enrolled in the “Amazon Associates Program,” which refers buyers to Amazon.com, while giving business owners up to 15 percent of the profit. As a result, Rhode Island saw less tax revenue and less economic growth as local businesses dependent on advertizing revenue were forced to close up shop.
California will suffer the same fate if Skinner gets her way. Our colleagues at Americans for Tax Reform, Patrick Gleason and Kelly Cobb, spell out the disastrous effects this new tax will have on California’s budget, businesses, and taxpayers. They note that in 2009, 25,000 individuals and small businesses in California earned $1.6 billion from online advertising, paying $124 million in state income tax. The state will loose that money, not to mention revenue from lost payroll, business, property and sales taxes. Sacramento’s budget problems are sure to get worse.
While Amazon contests the unconstitutional imposition of state sales taxes on their customers the company does support the goal of making tax laws "simple and harmonized" and does not oppose "a constitutionally permissible national system applied even-handedly.” Similarly the retail federation and 24 other states have been seeking federal approval of a formal compact that would simplify and harmonize sales tax administration among the states to get around constitutional hurdles to taxing interstate vendors.
However, this tax collusion is an affront to American federalism and tax competition. States are attempting to abandon true federalism and jurisdictional tax competition in exchange for the power to potentially recoup a small amount of tax revenue. The federalism of the Founders fostered friction and tension between competing units of government –“laboratories of democracy” if you will. Proponents of so-called tax streamlining use colorful words like “cooperation” and “harmonization” as a guise to extend tax burdens.1 Comments | Post a Comment | Sign up for NTU Action Alerts
On the GOP Response: Limited Government?
Paul Ryan, as the face of the Republican party, eloquently stated: "We believe, as our founders did, that 'the pursuit of happiness' depends upon individual liberty; and individual liberty requires limited government. Limited government also means effective government."
Man, these guys can really talk the talk. But I'm skeptical. For six years Republicans held the Presidency and both chambers of Congress. Six years of unified government! What ended up happening? Bush took office when government was consuming $1.86 trillion, 18.5 percent of GDP. When he left office the budget reached over $3.5 trillion, 24.9 percent of GDP! Mind you, all under Republican government -- the same folks who are promising to "limit" government and "cut" spending now. I would take their rhetoric with a grain of salt and hold their feet to the fiscal fire. Republicans won back the House and 20 state governments under the auspices of limited government.
Let's hope they put their money where their mouths are.2 Comments | Post a Comment | Sign up for NTU Action Alerts
Obama on how we win the future
Obama on how we win the future: "We need to out-innovate, out-educate, and out-build the rest of the world. We have to make America the best place on Earth to do business. We need to take responsibility for our deficit, and reform our government. That’s how our people will prosper. That’s how we’ll win the future"
While these are all true and noble goals, I hope that the President realizes that this will be achieved by allowing the private sector to innovate and compete, when the government keeps the budget manageable, and the scope of government is limited.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Obama praises tax cuts?
President Obama says this about the recent tax cut package.
"Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year."
Hopefully, this is a sign that he recognizes that high tax burdens cost the economy and will continue to push for tax relief in the next two years.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Tune into NTU's State of the Union Coverage tonight
Tonight at 9 p.m. EST, the National Taxpayers Union's crack government affairs and policy analysis teams will provide special online coverage of the President’s State of the Union Address, and we want you to be there and be a part of the discussion. We will be breaking down the President's proposals and what they will mean for taxpayers. Details on how you can join the conversation are below.
We look forward to seeing you online tonight at 9 p.m. EST!
We look forward to seeing you online tonight at 9 p.m. EST!
Where do our taxes go?
Ever wonder what our taxes pay for? Ned Flanders, our favorite neighbor from the Simpsons, knows exactly what taxes pay for and provides us with some fun for Friday.
Thanks to my colleague Dan Barrett for bringing this insight to my attention.0 Comments | Post a Comment | Sign up for NTU Action Alerts
While Illinois raises taxes, Georgia reforms them
While Illinois was busy raising taxes, Georgia was busy finding ways to make the tax code simpler, fairer, more stable, and more competitive for the 21st century. On January 7, the Special Council on Tax Reform and Fairness for All Georgians released its final report of recommendations for reforming Georgia's antiquated, agriculture-based tax system. Sometime in the next few weeks, the legislature will act on the Council's recommendations. From NTU's perspective, there are some good recommendations but also some proposals that need attention.
As NTU stated in a letter to Georgia lawmakers, the positive recommendations include a proposal to reduce the personal and corporate income tax rates. The report calls for the elimination of the current six tax brackets and a substantial reduction in the personal income tax (from the current highest marginal rate of 6 percent) over time. The Council envisions a rate that does not exceed 4 percent in 2014, at which point the income tax changes should (by the Council’s estimates) be revenue neutral. Additionally, the report calls for the corporate income tax rate to maintain parity with the personal income tax. As we said in our letter, "Flattening, simplifying, and reducing the income tax rates will help spur investment, lead to more job growth, and provide more revenue stability."
But while NTU supports the income tax reductions, there are several aspects of the Council’s report that we have concerns with. For example, we are concerned that the plan’s recommendation of an income tax rate higher than the revenue-neutral level of 4 percent for several years after the plan’s adoption would lead to substantially higher tax collections, an outcome that we cannot support because it is not fair for taxpayers. Furthermore, as we stated in the letter, the Council's call for "a flat communications service excise tax fails to take into account the unique aspects of how each service is delivered. Communications taxes differ because the communications technologies themselves differ in how they interact with public resources. Satellite television, for example, does not utilize public rights of way, so imposing a 7 percent tax on over one million satellite television subscribers in Georgia to pay for something they don’t use makes no sense. Additionally, the proposal to increase the cigarette tax is misguided because it can disproportionately harm the poor and small retailers without raising the projected revenue. Such has been the case in numerous places, among them New Jersey and the District of Columbia."
Reforming the tax code to alleviate the burdens on taxpayers is a worthwhile pursuit. The best possible reform is one that remedies the distortive and burdensome aspects of a tax code, but remains revenue neutral. There are some questions about this tax code that the legislature can and should address in the weeks ahead. Georgians are counting on their lawmakers to build a better tax code for a stronger, more prosperous economy.0 Comments | Post a Comment | Sign up for NTU Action Alerts
State Budgets Getting Worse Before Better
First the good news: state revenues are rising. After three years, state revenues that dried up due to the Great Recession have increased steadily and helped to fill state treasuries. The flow of revenue has been so solid that some states, such as Maryland, have reported surpluses at the end of the last fiscal year.
But here’s the bad news: despite the growth in revenue, states should expect to confront another round of massive budget deficits, some of which will be even worse than what the states have encountered thus far. States already face budget shortfalls in excess of $82 billion, according to the National Conference of State Legislatures. But that figure will likely be higher as state budget officials review their fiscal figures over the next several months.
Revenue collections, according to Stateline, have fallen so much in this recession that it will take years for the collections to return to precession levels. But another problem is that the cost of government is increasing, especially in healthcare, education, and public safety budgets. Given the nature of the political process, governors and state lawmakers will try to balance budgets and forestall cuts by resorting to tax increases, one-time fixes, borrowing, and accounting gimmicks. To name just one example, California’s Governor Jerry Brown is already talking about putting on the ballot a measure that would extend several unpopular tax hikes.
But it is also possible that the dire circumstances states find themselves in will finally force state officials, regardless of their party affiliations, to have the difficult conversation among themselves and with constituents about what services government can and should provide. For examples, Arizona’s Republican governor and New York’s Democrat governor are examining ways to reduce the size of their Medicaid programs by limiting eligibility, an idea once thought to be impossible.
The road back to the pre-recession days will be long and hard. Predictions for economic recovery are grim, especially as the Federal Reserve projects that unemployment will be at 8% through the end of 2012. Further, the rate of growth will have to be consistently higher than historic levels. By one estimate, Oregon’s revenues will not return to pre-recession levels even after a decade of growth.
What all this means for states is that Great Recession will have a greater impact than originally thought and state officials must factor this into their policies. No longer can states spend without restraint or under the assumption that revenues will quickly return to fix fiscal problems. The states must adjust to a new normal by having an honest conversation with taxpayers about the tough decisions ahead.0 Comments | Post a Comment | Sign up for NTU Action Alerts
Illinois' tax hike fallout
Shortly after Illinois Governor Pat Quinn, Speaker Michael Madigan, and Senate President John Cullerton rammed through a $7 billion income tax hike, the largest in state history, Scott Walker, Wisconsin’s new governor, had three words for Illinois businesses: Escape to Wisconsin. The phrase comes from an old Wisconsin tourism campaign. But the phrase is very appropriate for right now.
Illinois’ multi-billion dollar tax hike, which includes a 46% increase in the state’s corporate income tax, will fall heavily on Illinois businesses. In fact, according to the Tax Foundation and the Illinois Policy Institute, the corporate income tax rate, when combined with the federal corporate income tax and property replacement tax, gives Illinois the dubious honor of having the highest corporate income tax in the industrialized world. No wonder then that employees of Illinois-based heavy manufacturer Caterpillar sent 1,200 e-mails in opposition to the tax hike to just one state lawmaker.
Now that Illinois’ lawmakers have decided to increase the cost of doing business there, officials in other states like neighboring Wisconsin are trying to lure business away by emphasizing lower taxes relative to Illinois. Walker has proposed a complete elimination of the corporate income tax for two years for firms that move to Wisconsin. He is also pushing a series of proposals to reduce state spending and limiting tax increases.
Of course, Wisconsin’s Walker will not be the only state governor looking to take advantage of Illinois’ recent actions. Indiana’s governor Mitch Daniels, who has made a name for himself by pairing back spending, reforming health care, and signing budgets without tax increases, has talked about tax reform and has extended an invitation for Illinois businesses to relocate to the Hoosier state. Michigan’s Rick Snyder is already working on a proposal to reform his state’s dreaded business tax surcharge, which many observers say has stifled job growth in the state. Even Chris Christie in far away New Jersey has been promoted his state as a haven for businesses who want to flee the tax and spend culture in Illinois.
Of course, as businesses flee Illinois it will only mean less revenue for the state as the taxpayers Quinn, Madigan, and Cullerton are counting on to finance their overspending take their money elsewhere.
One of the great things about our federal system is that is allows states to experiment and compete, which yields the best ideas and policies. When a state does something right, it is copied widely. But when a state does something wrong, states avoid it or poach from its mistakes. Given the reaction so far, Illinois has clearly done something wrong with increasing taxes and other states will take full advantage of it.
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Happy Payroll Tax Holiday!
Many of you may have noticed a slight bump in your paychecks this month. No, it’s not an accident! The payroll tax cut, signed into law under last year’s tax cut compromise, just went into effect for more than 159 million American families. As you may recall, December’s tax package included a 2% cut in the employee portion of the payroll tax.
According to The Hill, “Under the payroll tax holiday, the average worker will see an annual paycheck increase of about $700, and the average family will see an increase of more than $1,000.” Furthermore, “Economists estimate the U.S. is likely to see economic growth of 3 percent to 4 percent in 2011.”
While we had grave concerns surrounding many of the provisions in the “compromise,” we were very pleased to see the payroll tax cut included. It’s a pro-growth measure that is much needed as our nation continues to face high unemployment and a dismal economic climate.
Enjoy! For the next 12 months anyway.
And in case you missed it, go here for a closer look at additional provisions within the tax deal.1 Comments | Post a Comment | Sign up for NTU Action Alerts