Sales Tax Laws Could Affect your Drone Purchase

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In a recent article on The Hill, organizations are urging Congress to reject proposed legislation that would require out-of-state online retailers to collect sales tax. This comes as the online sales tax issue has come back into the spotlight due to a case before the Supreme Court. See it here. Another proposed law could exempt certain drones from sales tax altogether.

Currently, if you make an online or phone purchase from a company that does not have a point of presence in your state, then you do not pay sales tax.

Supporters of the legislation say that the global sales tax measure is important because it provides a level playing field for brick-and-mortar retailers and allows states to collect sales tax that is owed to them.

Further to this, State and Local governments have been pushing for a greater ability to collect sales taxes from internet purchases, as the growth of e-commerce has made it harder for governments to reach their revenue targets. They could cut their expenses, but that is unheard of in government budgets.

Being that my small company has both an online and a brick-and-mortar presence, this could be a win or a big loss for us.

Examples

Some online retailers that once fought to keep “no taxes” on their online sales have now come out in support of the online tax. Amazon is one example of this.

The company wants this new tax IMO because it has grown exponentially, with points of presence in most states and is now required to collect sales tax.

For example, if you purchase something from Amazon and Amazon has a warehouse in your state, then you will pay your states sales tax on the purchase. If you purchase something on Amazon from a merchant that is selling on Amazon but does not have a point of presence in your state, then you do not pay sales tax. In this example, Amazon loses the sale, but gains commissions from the merchant using their systems. In the past, Amazon was against all sales tax but has since changed its position. The company negotiated with state governments to collect the sales tax in exchange for bigger tax incentives and to build and have a point of presence in their state.

Now that they have lost their online sales tax advantage, they want to regain that advantage over their online merchants and other small retailers not selling on Amazon by forcing all of the small retailers to collect the sales tax. Once accomplished, they can continue to dominate the small retailer with lower pricing.

While you might think this is a win for the consumer, the core thinking behind this law is flawed. Let me explain.

If I make a large purchase, then sales tax can become an issue. If I am in Georgia and order a $3000 drone from a merchant in the same state, I am required to pay 7% on the purchase ($210). If I am in Georgia and order a drone from a merchant in Tennessee, I would not be required to pay sales tax because my order shipped to a state where the merchant does not have a point of presence, a location, warehouse, or office, saving me $210.

Possible Scenarios

While the new tax proposal is not firm on how it would be implemented if everyone was required to pay sales tax the shopping game would change and it could go down in several different ways.

1. When I go to make that $3000 drone purchase I am going to research which state has the lowest sales tax and make the purchase from a merchant in that state. So the states with the lowest sales tax will get all of the business. This is a disadvantage to states with a higher sales tax and could force them to lower sales tax to get more out-of-state business. I seriously doubt this would happen.

2. Make the out-of-state merchant charge the sales tax for the purchaser’s state. So If I am in GA, 7% rate, and purchase from TN, the TN merchant is required to charge me the 7%. This creates extra work for merchants who will need to keep up with the various tax laws in all 50 dates and then do the remitting each month to all 50 states. The end result is each merchant’s cost of doing business increases, forcing them to raise prices, and everyone loses.

3. Implement a new national sales tax in some amount, let’s say 5%. In this case, if you purchased a drone in your home state, then you would pay your local sales tax, 7% in GA. If you purchased from an out-of-state company, then you would pay the new national sales tax. All this does is add more tax on already overburdened citizens.

4. I think it is best to leave it as is. My company might lose some sales as GA residents shop for larger purchases out of state, as would I, but I will gain the business from out-of-state customers who want to save money from the tax.

Better yet kill all of the various states incentives for large companies, along with sales taxes. Force the states live within their means like the rest of us are forced to do.

I look forward to your ideas, please leave them in the comments section below.



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