Benjamin said, “Another incentive for some firms is that state law prevents North Carolina from economic relationships with firms who do not collect its sales tax.”

I’d LOVE to learn more about this! On many occasions as a florist, I have received (heavily discounted) orders from out-of-state floral marketers with a signature like, “Condolances From Your Friends At DMV.” The order MAY have been paid for by the employees OR may have been paid by the state.

Can Benjamin please point me to where this particular requirement might be found?

And I agree completely with Benjamin’s comment, “But there are only two things in life that are certain. People paying taxes that are otherwise avoidable ain’t one of them.”

Nobody (including Cabinet appointees) pays taxes unless they absolutely HAVE TO!

Thomas Sowell is a Professor of Economics and is a Rose and Milton Friedman Senior Fellow at the The Hoover Institution, Stanford University. He is best known for his highly readable (as are all his works) “Basic Economics.” His website is: http://www.tsowell.com
It contains copies of many of his Nationally Syndicated columns. He makes more sense than any economist I have ever read.

Bill Miller

He must be right, also, saying that out-of-state (remote) vendors will not collect a state’s sales tax unless there is an economic incentive to do so. Paying remote vendors to collect sales taxes may not work. For it to work, the compensation the state pays a remote vendor must exceed the vendor’s administrative costs, plus the cost of lost business, minus the risk they will owe back taxes if they choose not to collect.

Firms who choose not to collect sales taxes of SSTP signatory states may be billed for back taxes, if and when the law changes. States belonging to SSTP issue amnesty to firms agreeing to collect the taxes, against the possibility the states can collect taxes on remote sales made prior to a change in the law. This is only a risk: many firms may conclude they are better off taking the risk.

Since the amnesty went into effect in 2005, a fair number of remote vendors have registered, so it appears that some large firms take the risk seriously. That may be why Amazon is collecting New York’s sales tax, at the same time that its position is that it does not owe tax on its remote sales in New York. And that may be part of the reason that remote E-commerce vendors with no North Carolina nexus pay 75% of the sales tax they would owe if the had nexus.

Paying remote vendors to collect sales tax will tend to tilt some firms’ profit calculations toward registering in North Carolina and collecting its tax. Another incentive for some firms is that state law prevents North Carolina from economic relationships with firms who do not collect its sales tax.

Nevertheless, Bill is right. Paying remote vendors to collect the sales tax may not be effective or it may not work at all. But there are only two things in life that are certain. People paying taxes that are otherwise avoidable ain’t one of them.

Who’s Thomas Sowell?

Mr Russo said, “I believe there is another way around the nexus controversy. Why doesn’t North Carolina pay remote retailers to collect NC’s sales taxes? This idea was a recommendation in the latest NC Tax Reform Commission. Published estimates indicate NC forgoes hundreds of millions of dollars in sales tax revenue to remote sales. Giving remote retailers a cut of the take could provide sufficient incentive for them to forgo their competitive advantage, and collect and remit the tax. NC retailers would be better off, remote retailers would be better off, and NC taxpayers would be better off (except those who now benefit by avoiding NC sales tax by shopping online or through catalogs). Why doesn’t our General Assembly act? Probably for the same reasons they ignore all the other Commission sensible recommendations. North Carolinians pay a large price for the inaction.”

On the surface of it, it seems to be a sensible suggestion. But, as Thomas Sowell suggests, let’s look at phase two, ie. what happens AFTER we do this.

Why in the world would an out-of-state vendor be willing to do this? Online shoppers are not (too) stupid. When they KNOW that they can buy something TAX FREE, they will flock to that supplier — even if their final cost is actually higher. (I SAID, “too stupid,” didn’t I?)

Remember when SC initiated Tax-free back-to-school shopping, and NC did not? It didn’t take too long to “level the field” when NC SAW thousands of NC license plates STREAMING across the state line to buy in SC. Now we have tax-free weekends also and ‘most any retailer will tell you that they look forward to that weekend wit anticipation of dramatic sales increases!

So, what will happen if we adopt the “pay to play” idea is that most out of state retailers will ignore it. For those that do not, we will need an entirely new bureaucratic group to administer the (more) complex aspects of rebating Sales Taxes to folks in 49 other states. If NC tries to enforce it, off it goes to the US SC that will adjudicate it based on DIFFERENT PRECEDENTS than those that will be used in the New York case. Meanwhile, NO ADDED REVENUE will be generated!

On the other hand, if NC goes after folks that are SELECTIVELY collecting sales tax on SOME NC sales, but not on others, then here is what I see happening in phase two: The “culprits” will be forced to pay sales tax while their competitors do not. That will mean that the former “culprits” will dramatically lose market share. And THAT means that they will want to re-level the playing field. And THAT means that they will start supporting taxing ALL NC transactions irrespective of source. Just like the local merchants that are losing business NOW!

Sounds kinda like the classic “Baptist-Bootlegger” coalition that opposed the abolition of Prohibition!

Bill Miller
The Flower Hut

While at the University of Chicago, Austin Goolsbee published evidence that the nexus loophole in the sales tax provides a competitive advantage to out-of-state (remote) retailers. It is a boon to remote retailers, and a lousy situation for small NC retailers. In 1992, in the Quill vs. Illinois U.S. Supreme Court ruling, the Court gave Congress power to grant states the right to require remote retailers to collect the states’ sales taxes, if doing so does not put an undue burden on retailers. Congress has not acted. Perhaps they have been too busy being goofy to respond.

I’m no lawyer, but in my humble opinion, I would think the Commerce Clause probably can be interpreted to grant the power to define nexus to the U.S. Supreme Court, not state legislatures. It seems to me that the Supreme Court’s ruling is less ambiguous than the qualifier *seem* (in “current US Supreme Court rulings *seem* to preclude states from taxing”) suggests. The Court stated that retailers who do not have physical presence in a state are not required to collect that state’s sales tax: period. As long as NY cannot overrule the Supreme Court, physical presence would seem to trump other criteria that states like (such as “business presence”). Perhaps a future U.S. Supreme Court ruling may change this. That possibility appears more likely now that SSTP has gotten many states to agree on definitions of taxable commodities, which simplifies tax collection. It helps, also, that there now is a robust software program that makes it easy for remote vendors to add other states’ sales taxes to commodities shipped out of state. The software is provided free to retailers, so it should no longer be a large burden to collect the taxes.

I believe there is another way around the nexus controversy. Why doesn’t North Carolina pay remote retailers to collect NC’s sales taxes? This idea was a recommendation in the latest NC Tax Reform Commission. Published estimates indicate NC forgoes hundreds of millions of dollars in sales tax revenue to remote sales. Giving remote retailers a cut of the take could provide sufficient incentive for them to forgo their competitive advantage, and collect and remit the tax. NC retailers would be better off, remote retailers would be better off, and NC taxpayers would be better off (except those who now benefit by avoiding NC sales tax by shopping online or through catalogs). Why doesn’t our General Assembly act? Probably for the same reasons they ignore all the other Commission sensible recommendations. North Carolinians pay a large price for the inaction.

Yes, current US Supreme Court rulings *seem* to preclude states from taxing. But in NY, the STATE has defined a nexus as including IN-STATE affiliate marketers. (I suspect that is headed to the high court also.) They are collecting Sales Tax from Amazon and others that are shipping products into NY State.

A key point is that NC also has a nexus definition. It includes *A* requirement for physical presence, but also includes definitions regarding having resident personnel that are doing business in NC, as well as “exploitation” by means of phone and internet directories that are aimed at NC consumers. Put another way, you do not have a nexus if you advertise, “buy Coca Cola.” You DO have a nexus — per NC law — if you advertise representing your company as serving or supplying a NC destination.

So… States Rights question: Who has the right to define the nexus within a state? The State or the US Supreme Court? BTW, the SC made its ruling — as near as I can tell — in the absence of any enabling US legislation.

And please do not forget my earlier comment. At least two of the three largest floral suppliers have a self-defined nexus since they are — and have been for many years — collecting NC sales taxes from their NC members for certain goods and services that they supply. BUT they are NOT charging NC Sales Tax on orders that are destined for NC!

I have billing statements to prove this with two of them.

It must be nice to be able to decide which taxes you chose to pay, and which taxes you chose to ignore!

NC D of R is aware of this, but does not seem interested.

Bill Miller
The Flower Hut
BTW, is the plural of nexus nexi?

The Streamlined Sales Tax Project

The effort that became the Streamlined Sales Tax Governing Board began in March 2000. The goal of this effort is to find solutions for the complexity in state sales tax systems that resulted in the U.S. Supreme Court holding (Bellas Hess v. Illionis and Quill Corp. v. North Dakota) that a state may not require a seller that does not have a physical presence in the state to collect tax on sales into the state. The Court ruled that the existing system was too complicated to impose on a business that did not have a physical presence in the state. The Court said Congress has the authority to allow states to require remote sellers to collect tax.
The result of this work is the Streamlined Sales and Use Tax Agreement. The purpose of the Agreement is to simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance. The Agreement focuses on improving sales and use tax administration systems for all sellers and for all types of
commerce…

The North Carolina Dept. of Revenue has been attempting to deal with
the problem by way of the “Streamlined Sales Tax Agreement,” which the Dept. helped spearhead in the early 2000s.

Your panel did not touch on one source of revenue that is being IGNORED by NC Dept of Revenue: Sales tax that is not being collected by firms that are out of state but have a NEXUS in North Carolina.

One example: I am a Charlotte florist. By law, I must charge NC sales tax on every transaction. Out of state floral marketers do not charge NC sales tax, even though they are advertising in NC phone directories, online directories and pay-per-click ads with keywords such as “Charlotte Flowers,” “Charlotte Florist,” etc.

In fact, at least 2 out of the the “big three” National Florists, (FTD, Teleflora and 1-800-FLOWERS) have paid staff in NC and are CHARGING NC sales tax on goods and services that they sell to their member florists, BUT DO NOT CHARGE SALES TAX on sales to the general NC consumer.

In addition, at least HALF of the money that consumers pay to these out-of-state “florists” stays out of state. Local florists, and the jobs that they generate, are the losers.

There are doubtless other industries that have similar transgressions.

It is easy to show that there are millions of dollars in lost NC revenue taking place every year. NC D of R is aware of this issue but seems to be doing nothing.

Bill Miller
The Flower Hut
Charlotte, NC

One example;

We take precuations against future financial disaster by buying insurance. State and local governments should do the same by increasing their Rainy Day Funds when times are good. If North Carolina had set aside 2% of expenditures per year since 2002, and earned 1% per year in safe assets, it would have had a sufficiently large RDF to take pay for the current shortfall (after the federal stimulus funds).