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North Carolina wants a piece of digital sales

Most consumers would agree that they are taxed enough. Those who happen to live in a state that has a state income tax are taxed even higher than some consumers in America are. One of the few respites from sales tax has long been online purchases through companies who don’t have a physical presence in the state the consumer lives in.

Massive online retailers like and Apple, owner of iTunes, have spent a considerable amount of time and money fighting attempts by various states to tax digital sales. New York State passed a law that forced Amazon to add sales tax to orders for consumers in the state. Amazon filed suit against the state on the grounds that it had no physical presence in New York State, a concept called "nexus" which previously had protected online firms against such taxation. However, Amazon ultimately lost the suit because New York State was able to prove that by soliciting affiliates in the state it was effectively doing business there.  In losing, a legal precedent was set which promised to potentially undo nexus protections for online retailers across the country.

Apple's iTunes store has also drawn the eyes of lawmakers in various states looking to add tax revenue to their state coffers, inspired by recent successes. New York State was again at the forefront of the case when it tried in December of 2008 to force Apple to collect sales tax on digital sales from iTunes.

Other states are looking at the success New York State has had with getting money from digital sales and want a piece of the action. A legislative commission in North Carolina is looking at methods that could be used to tax digital downloads from sources like Amazon and iTunes.

The committee is attempting to "modernize" the North Carolina tax code, which was written long before the advent of digital sales.

Rep. Paul Luebke describes, "We used to think of everything in terms of being tangible. Nobody thought of how you could possibly download anything."

At this point, taxing digital downloads is still nothing more than a proposal and is far from becoming law. However, changes proposed by the general assembly could affect how tax laws in North Carolina are written in the future.

Luebke continues, "So if you buy a book in a bookstore, you're going to have to pay sales tax on it," Luebke said. "If you're downloading a book from a book seller, you should have to pay sales tax on that as well."

According to research taxing digital sales of music, books, movies, and software could add about $12 million to state tax revenues over the next fiscal year. That is a temptation that the state isn’t likely to pass up, considering that North Carolina is faced with a $2 billion shortfall in its budget.

CEO of the North Carolina Technology Association Brooks Railford disagrees with the proposed digital sales tax. Mr. Railford states, "We would be concerned about any kind of new taxes in this economy. The consumer is already very highly taxed, the economy is stretched. All we're asking is that those considerations be taken carefully and that the industry be asked for their input as the legislation is finalized."

One of Railford's major concerns is the impact on sales of digital good to the companies who sell them. The lack of sales tax online is often one of the key reasons consumers buy online rather than in a retail store. Adding sales tax could have a major detrimental effect on online retailers.

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Makes sense...
By wordsworm on 1/29/2009 12:14:24 PM , Rating: 2
Nobody likes to pay taxes, but to be fair, things have changed a lot in terms of sales over the past 10 years of growing online exchange. My fear is that each state will demand more than its fair share. It's going to be really tough to do it right. Imagine that 5 states start doing what NYC did, and all 5 of them want taxes from the same order. How will it be resolved? This will be a big concern, I have no doubt.

The problem with leaving things as-is, is that mortar and brick retailers are at an unfair advantage. They *do* have to pay these taxes. If a fair system is set up, then surely it would help even the playing field. If the system gets screwed up as in the previous scenario, then they might actually gain an advantage. Since there's more tax money in screwing it up than doing it right, I'm going with it as the likely scenario in 5-10 years.

RE: Makes sense...
By afkrotch on 1/29/2009 1:53:41 PM , Rating: 2
Huh? B&M retailers are at a disadvantage and always will, because of the way their business is. Unlike an online only shop, they have to maintain a front end. This means multiple stores with multiple employees throughout a state. While an online only business can have a single warehouse with a few employees for a single state, if not multiple.

Newegg. Online only. 1500 employees for the whole US.

Fry's Electronics. 300 employees per store. That's 10,200 employees for it's 34 stores in 9 states.

I used wiki for the information, so I'm sure the numbers are somewhat flawed, but you end up getting the picture.

RE: Makes sense...
By wordsworm on 1/29/2009 11:03:58 PM , Rating: 2
So, if B&M employ more people, and have so many disadvantages already, why would the government ante up their prices with sales tax but not the online merchants? I'm just suggesting that they ought to even the playing field in at least that scenario.

RE: Makes sense...
By afkrotch on 1/30/2009 8:28:50 AM , Rating: 2
What I'm saying is there will never be an even playing field for B&M stores, because of they operate.

Even if an online store has a triple amount sales tax, they would still have the advantage over a B&M for profits.

The only advantage that a B&M is that not everyone has internet or doesn't do business over it. Some ppl just prefer to walk into a store and look around, as opposed to looking at a picture and ordering it.

"The whole principle [of censorship] is wrong. It's like demanding that grown men live on skim milk because the baby can't have steak." -- Robert Heinlein
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