Sales Tax Research Essay

Sales Tax Research Essay

Sales Tax is the consumption tax that the government imposes on the sale of goods and services. Sales taxes occur at the place where the consumer makes the payment for products and services. Point of purchase can either be a physical store, where the point of purchase terminal and other payment systems interact. Every government requires all businesses, either with a virtual or physical location, to pay sales tax (Dunn, 1). The government charges sales taxes on end-user goods and services because the majority of products pass through several manufacturing stages. It is hard to define who should pay taxes when goods go through various manufacturing entities. As such, the government charges sales taxes on final products instead of following up in all manufacturing processes, which would be challenging due to a large amount of documentation necessary to prove the entity liable for sales tax.

Every jurisdiction has its unique sales taxes, and each state levies its own sales taxes. Sales taxes apply to end consumers who purchase end products from the vendor. For instance, a person buying a product from Amazon.com has to pay sales tax. Also, Amazon.com has the obligation of collecting sales tax depending on the area of operation policies. As such, Amazon.com has to calculate, collect, and remit taxes on sales made by various products shipped to end consumers located in states that have Marketplace facilitators, marketplace fairness, or other laws. These tax regulations hold the merchant’s sale accountable for sales taxes. In other words, sales taxes apply to orders delivered to end consumers (Dunn, 1). However, sales taxes vary depending on either the order is delivered to residential or business premises. On the other hand, sales taxes do not apply to gift cards, but purchases paid with gifts may be subjects to tax.

Before the U.S. Supreme Court ruling on sales taxes, businesses had to be physically present in a particular state to be taxed. However, as from last June, states were given the ability to collect taxes from businesses operating beyond the state’s boundaries. The South Dakota law requires all companies operating outside the country to collect and remit sales taxes. This law was made effective in providing a safe business environment for remote vendors because they were previously intimidated by businesses selling products online to evade taxes. Also, this law allows states to have an apparent authority and holds online as well as remote sellers responsible for collecting sales taxes to ensure a level platform for all businesses.

After the reduction of the nexus requirement in 1992, sales taxes were burdened to the out-of-state retailer in determining the tax owed. States responded to this concern by creating a Streamlined Sales and Use Tax project to ease tax collections. Further, this tax collection project brought together stakeholders to reduce burdens on smaller remote sellers. The streamlined sales and use tax agreement simplifies the registration process in multiple purchases tax-levying states.

Nexus defines the connection between the business and the state. Once a company adopts nexus regulations have the obligation of collecting and remitting sales and use taxes to the state and local tax jurisdiction. Before the South Dakota vs. Wayfair case, physical presence was necessary for a business to have nexus. At the beginning of 2008, states started adopting nexus laws. Nexus laws obligate remote sellers to collect taxes if they share any links with any in-state marketing affiliates, mainly through click-through referrals like ads. The fundamental economic nexus law was enacted in 2016 after the implementation of South Dakota in S.B. 106. The economic nexus applies to businesses that conduct a considerable amount of transactions or sales. This law requires states to collect and remit sales and use taxes. The standard set by nexus is that all businesses conducting more than 200 transactions should collect and remit sales and use taxes to the state and local taxing jurisdictions. If a company has nexus in a particular state, then the country charges sales taxes to buyers in that state. Business such as Amazon uses resources in states that they conduct business, making it necessary for the company to have nexus. As such, every customer inventory stored in Amazon’s fulfillment centers, the customer has to pay sales tax. The only exceptional states that nexus do not apply are Virginia and New York. In these states, nexus law applies to third-party sellers. Also, sales taxes do not apply to Arizona because it has its unique transaction privilege tax, which imposes a tax on doing business rather than on the sales of products in the state. However, the sales tax may apply to retailers if they choose to conduct business as third party sellers.

In continuation, the ACEC’s representing telecommunication and E-commerce companies such as Amazon proposed the extension of the current sales tax moratorium for about five years and allow these companies to enjoy tax breaks. The tax simplifications proposed by ACEC allows states to impose taxes on E-commerce companies in states that they operate (Billboard, 1). In response to the exemptions, the proposal states that all state governments should have the authority to collect sales taxes from E-commerce companies that sell products across state boundaries. Congress requires the ACES to develop recommendations for an internet tax plan, which will help in charting new tax models for all states in the millennium era. However, the commission, which included the local government officials, pro-tax state, and business tax advocates, have to approve the proposal for it to be effective. Also, before any recommendations, the white house and the congress must approve the plan. The ACEC is a body created by the congress to analyze the federal, state, local government, and international taxation system and tariffs on E-commerce transactions as well as internet access. The ACEC body seeks to balance E-commerce tax and policies with other countries.

Sales tax collection is an issue that is constitutionally engraved and detailed by the congress though debates and hearing. However, the process of adopting and enacting sales taxes for E-commerce business has a history that traces back to 1998. In 1998, the Internet Tax Freedom Act, moratorium, was proposed to give states the time to understand the nature of E-commerce business. Before this proposal, e-commerce was widely accepted and celebrated across the world despite the significant potential for states and local governments to make informed decisions about internet taxation. Although the Moratorium does not affect Amazon’s business operations in any way, it had a significant impact on American consumers, including Amazon’s consumers, who did not have to have to pay taxes for purchasing commodities online (the United States, 16).

Further, the Moratorium gave states the time to familiarize themselves with the internet and its full benefits. Also, it provided companies like Amazon and its stakeholders a certainty of tax policy they needed to make substantial investments such as building infrastructures and services necessary for delivering customers with universal, reliable, and affordable medium to purchase and sell their products. Although states lost extra revenue during the Moratorium, it channeled ways through which state governments can use to have the constitutional right to collect taxes from e-commerce businesses (the United States, 16 & 17).

Additionally, Moratorium paved the way for sales tax nexus, where companies have to determine what they are selling is taxable in various states of operations. Generally, E-commerce businesses such as Amazon sell tangible personal properties to consumers across the world, and these products fall in the category of taxable commodities. As such, Amazon customers have the obligation of paying sales taxes according to the state’s sales tax requirements. However, every country has its unique way of collecting sales tax, but the ACEC has standardized the E-commerce business across the states.

Sales tax intends to restrain trade and unfair methods of competition. It would be unjust for manufacturers to sell finished products at retail prices to consumers because, by doing so, the manufacturer will be creating a monopoly in that particular line of commerce. Monopoly injures or prevents fair competition in that line of business, resulting in unfair trade. Also, sales tax was implemented to avoid taxing physical firms and avoid the taxation of E-commerce business despite producing the same commodities in the market. Further, the sales tax enactment was to prevent double taxation of products as it would have adverse effects on the international exchange of goods and services as well as the cross-border movement of technology and capital. Lastly, if a company fails to collect sales taxes in a particular state, it will hurt the states and local authorities’ ability to raise enough funds to support education, health, and other amenities. As such, when consumers purchase products from companies like Amazon, they support the government to raise the necessary financial aids that help in improving its economy. For instance, Amazon is obligated to collect sales taxes in states where it has a physical presence and allows other countries without local stores to raise sales taxes from commodities sold to consumers.

Lastly, although amazon has the obligation of collecting sales tax, it is not willing to collect this tax in states that it has no physical presence. The argument behind Amason’s failure to collect sales tax in these states is that it does not, in any way, benefit from the state’s infrastructure or service. On the other hand, instead of taxing Amason, a country where the company lacks physical presence, it taxes commodities sold to end consumers or third parties wishing to conduct business with Amazon products. However, other retailers feel the Amason is enjoying a critical competitive advantage by avoiding sales tax despite selling its products in various states without its physical presence. Obligating Amazon to collect sales tax in states that it sells its product will not only make stakeholders go an extra cost, but it will force the company to engage in a cumbersome tax documentation process.

Conclusively, it is within the constitutional law for E-commerce businesses to collect sales tax in states where they operate. State and local governments raise funds to finance various services through taxes collected. The evolution of sales tax has come to be a tough journey with most companies, primarily e-commerce entities such as Amazon, trying to evade it. Although the moratorium period made it easier for an e-commerce business to operate without paying sales tax, it gave local and state governments to come up with a clear way of implementing sales tax lawfully. Today, it is a constitutional right for states to obligate all businesses to collect sales tax. Although large e-commerce businesses still feel the obligation to collect tax as heavy and tiresome, they have to comply with the taxation law proposed by the ACEC. ACEC suggests that every business operating in a particular state has to collect sales taxes and adhere to the state’s tax regulation to continue its business operation.

Further, although businesses that conduct their transactions via the internet are not held accountable for collecting sales tax in states where they sell their commodities, they should ensure that consumers are taxed for commodities purchase. Lastly, sales tax limits the ability of manufactures from selling their products straight to consumers at a retail price, which would prevent competition of a retail dealer in such commodities. Sales tax not only controls competition among businesses, but it also provides the government with financial resources to fund its budget. It would not be surprising that e-commerce businesses across the world will have to abide by the tax regulations of various states to operate and sell their products to citizens of a particular country. Also, it is mandatory under the law for companies either with a physical presence or virtual presence to collect sales taxes to operate in a given state.