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Author Topic: The united states to tax online purchases.  (Read 724 times)
algar32
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July 20, 2012, 03:44:52 AM
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New forum user. Long time bitcoin fan Smiley  (although I have yet to have the opportunity to make a bitcoin purchase Sad ).

The united states to tax online purchases.
http://www.foxbusiness.com/technology/2012/07/17/dodging-sales-tax-getting-harder-for-amazon-other-online-retailers/
http://www.nolo.com/legal-encyclopedia/sales-tax-internet-29919.html

Could this possibly push more online stores to accept bitcoins? Thanks.


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grantbdev
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July 20, 2012, 03:48:22 AM
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Well it can't hurt Bitcoin.

Don't use BIPS!
algar32
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July 20, 2012, 03:58:16 AM
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Well it can't hurt Bitcoin.

True that Smiley. Anyone else think this could maybe help bitcoin out?

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July 20, 2012, 04:16:55 AM
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I think it will not make a difference, because (at least in California) sales tax applies to the purchase of physical goods; so if some retailer wants to be an outlaw and not collect sales tax, they're going to have to be shipping goods from outside of the US into the US, which means higher shipping costs, potential customs problems, longer delivery times, and wary customers.

And once the sales tax machine gets cranked up, I fully expect to see integration between customs declarations and state tax authorities, so the states will still seek their sales tax from the end users.

There's a perception that BTC is some crazy bandit currency that somehow escapes regulation - the bottom line is that retailers of any significant size are going to be forced to comply with the sales tax regime. And, frankly, if some retailer wants to be an outlaw and rip someone off, it would make a lot more sense for them to appear to comply with the sales tax system, but then underreport their sales and just pocket the extra sales tax.

Also, once the sales-tax-on-the-internet thing is implemented, retailers who do cooperate with the system will have an incentive to rat out their competitors who don't; and the tax authorities will have an incentive to go after those people, and make painful examples out of some of them, to scare everyone else into submission.
algar32
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July 20, 2012, 04:24:39 AM
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I think it will not make a difference, because (at least in California) sales tax applies to the purchase of physical goods; so if some retailer wants to be an outlaw and not collect sales tax, they're going to have to be shipping goods from outside of the US into the US, which means higher shipping costs, potential customs problems, longer delivery times, and wary customers.

And once the sales tax machine gets cranked up, I fully expect to see integration between customs declarations and state tax authorities, so the states will still seek their sales tax from the end users.

There's a perception that BTC is some crazy bandit currency that somehow escapes regulation - the bottom line is that retailers of any significant size are going to be forced to comply with the sales tax regime. And, frankly, if some retailer wants to be an outlaw and rip someone off, it would make a lot more sense for them to appear to comply with the sales tax system, but then underreport their sales and just pocket the extra sales tax.

Also, once the sales-tax-on-the-internet thing is implemented, retailers who do cooperate with the system will have an incentive to rat out their competitors who don't; and the tax authorities will have an incentive to go after those people, and make painful examples out of some of them, to scare everyone else into submission.

I kind of figured it would work out something like this. You seem to have some insight on the matter. Are you saying that a large retailer couldn't use bitcoins? If they did would they reimburse the state in taxed bitcoins (obviously they would not accept them)? Or would they be forced to convert in to USD and then pay the state in that?  I think that unless major online stores start doing it many could easily get away with it because there is not legislation on taxing bitcoins (or how one should go about turning them into usd and paying the feds) is there? But there will be legislation on taxing goods.... I don't know, Kind of confusing for me to try and think of how it would pan out.

ehh sorry for the rambling^^^... Let me know what you think though. Thanks.

blakdawg
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July 20, 2012, 04:38:48 AM
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I kind of figured it would work out something like this. You seem to have some insight on the matter. Are you saying that a large retailer couldn't use bitcoins? If they did would they reimburse the state in taxed bitcoins (obviously they would not accept them)? Or would they be forced to convert in to USD and then pay the state in that?  I think that unless major online stores start doing it many could easily get away with it because there is not legislation on taxing bitcoins (or how one should go about turning them into usd and paying the feds) is there? But there will be legislation on taxing goods.... I don't know, Kind of confusing for me to try and think of how it would pan out.

ehh sorry for the rambling^^^... Let me know what you think though. Thanks.

Hey, you got 5 posts! Smiley

I don't see any reason why a big retailer couldn't use bitcoins, but there's no magical exemption from taxation for transactions that occur or are denominated in currencies other than USD. If the "we didn't use dollars" trick worked, we'd all be using Mexican pesos or Canadian dollars or whatever and giving the tax guys the middle finger.

Using alternative currencies introduces a little complexity - partly because of exchange rate issues, and partly because it's just more work on the part of the tax authorities to learn about the new tricks - but there's a giant difference between behavior that's legal, and behavior that's tough for the authorities to punish.

BTC's obscurity and (IMHO oversold) "anonymity" mostly touch that second angle - the "you can't see this, and you can't punish me for doing things you can't see" argument - but that really doesn't last very long, and ultimately it's a practical argument, not a legal argument.

To answer your literal question, if Walmart woke up tomorrow morning and decided to do business in BTC, they'd still have various payroll/income/sales tax obligations to the tax authorities, and they'd need to exchange BTC for USD in order to satisfy those obligations.

We don't need any extra legislation, the existing tax rules apply no matter whether you're selling things for dollars or for bananas or for BTC. There's a popular (and wrong) perception that barters or exchanges aren't taxed - that's not what the law says. The practical side of that is that if two people engage in an effectively invisible transaction, and nobody squeals, the likelihood of being caught for tax evasion is close to zero.

So if you go deliver something for me and I make you some tacos for dinner in exchange, nobody's gonna notice, and nobody goes to jail.

But if UPS and Taco Bell made the same deal - Taco Bell gets to ship things for free, and all of the UPS drivers get to stop in a Taco Bell and get free lunch every day - IRS would be all over them, and they'd have to report the transactions, converted to USD equivalents, on their respective tax returns as income and expense items.
Frankie
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July 20, 2012, 12:23:56 PM
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I kind of figured it would work out something like this. You seem to have some insight on the matter. Are you saying that a large retailer couldn't use bitcoins? If they did would they reimburse the state in taxed bitcoins (obviously they would not accept them)? Or would they be forced to convert in to USD and then pay the state in that?  I think that unless major online stores start doing it many could easily get away with it because there is not legislation on taxing bitcoins (or how one should go about turning them into usd and paying the feds) is there? But there will be legislation on taxing goods.... I don't know, Kind of confusing for me to try and think of how it would pan out.

ehh sorry for the rambling^^^... Let me know what you think though. Thanks.

Hey, you got 5 posts! Smiley

I don't see any reason why a big retailer couldn't use bitcoins, but there's no magical exemption from taxation for transactions that occur or are denominated in currencies other than USD. If the "we didn't use dollars" trick worked, we'd all be using Mexican pesos or Canadian dollars or whatever and giving the tax guys the middle finger.

Using alternative currencies introduces a little complexity - partly because of exchange rate issues, and partly because it's just more work on the part of the tax authorities to learn about the new tricks - but there's a giant difference between behavior that's legal, and behavior that's tough for the authorities to punish.

BTC's obscurity and (IMHO oversold) "anonymity" mostly touch that second angle - the "you can't see this, and you can't punish me for doing things you can't see" argument - but that really doesn't last very long, and ultimately it's a practical argument, not a legal argument.

To answer your literal question, if Walmart woke up tomorrow morning and decided to do business in BTC, they'd still have various payroll/income/sales tax obligations to the tax authorities, and they'd need to exchange BTC for USD in order to satisfy those obligations.

We don't need any extra legislation, the existing tax rules apply no matter whether you're selling things for dollars or for bananas or for BTC. There's a popular (and wrong) perception that barters or exchanges aren't taxed - that's not what the law says. The practical side of that is that if two people engage in an effectively invisible transaction, and nobody squeals, the likelihood of being caught for tax evasion is close to zero.

So if you go deliver something for me and I make you some tacos for dinner in exchange, nobody's gonna notice, and nobody goes to jail.

But if UPS and Taco Bell made the same deal - Taco Bell gets to ship things for free, and all of the UPS drivers get to stop in a Taco Bell and get free lunch every day - IRS would be all over them, and they'd have to report the transactions, converted to USD equivalents, on their respective tax returns as income and expense items.

Just so. And it would apply to individuals as well. If you make a pile of CHF or Wynn Casino checks, you don't get much mileage by saying they're not really taxable money--even if you manage to spend them in the US as "barter" without ever converting them to dollars. If the taxman finds out, he will want them declared as income and taxed.

While an individual or, say, a mob cigarette dealer, might get away without paying taxes much of the time through obscurity, you're absolutely right that any major retailer will end up mostly complying with the law--and there will be taxes.
algar32
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July 20, 2012, 04:21:08 PM
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I kind of figured it would work out something like this. You seem to have some insight on the matter. Are you saying that a large retailer couldn't use bitcoins? If they did would they reimburse the state in taxed bitcoins (obviously they would not accept them)? Or would they be forced to convert in to USD and then pay the state in that?  I think that unless major online stores start doing it many could easily get away with it because there is not legislation on taxing bitcoins (or how one should go about turning them into usd and paying the feds) is there? But there will be legislation on taxing goods.... I don't know, Kind of confusing for me to try and think of how it would pan out.

ehh sorry for the rambling^^^... Let me know what you think though. Thanks.

Hey, you got 5 posts! Smiley

I don't see any reason why a big retailer couldn't use bitcoins, but there's no magical exemption from taxation for transactions that occur or are denominated in currencies other than USD. If the "we didn't use dollars" trick worked, we'd all be using Mexican pesos or Canadian dollars or whatever and giving the tax guys the middle finger.

Using alternative currencies introduces a little complexity - partly because of exchange rate issues, and partly because it's just more work on the part of the tax authorities to learn about the new tricks - but there's a giant difference between behavior that's legal, and behavior that's tough for the authorities to punish.

BTC's obscurity and (IMHO oversold) "anonymity" mostly touch that second angle - the "you can't see this, and you can't punish me for doing things you can't see" argument - but that really doesn't last very long, and ultimately it's a practical argument, not a legal argument.

To answer your literal question, if Walmart woke up tomorrow morning and decided to do business in BTC, they'd still have various payroll/income/sales tax obligations to the tax authorities, and they'd need to exchange BTC for USD in order to satisfy those obligations.

We don't need any extra legislation, the existing tax rules apply no matter whether you're selling things for dollars or for bananas or for BTC. There's a popular (and wrong) perception that barters or exchanges aren't taxed - that's not what the law says. The practical side of that is that if two people engage in an effectively invisible transaction, and nobody squeals, the likelihood of being caught for tax evasion is close to zero.

So if you go deliver something for me and I make you some tacos for dinner in exchange, nobody's gonna notice, and nobody goes to jail.

But if UPS and Taco Bell made the same deal - Taco Bell gets to ship things for free, and all of the UPS drivers get to stop in a Taco Bell and get free lunch every day - IRS would be all over them, and they'd have to report the transactions, converted to USD equivalents, on their respective tax returns as income and expense items.

Thanks. Makes a lot of sense Smiley.

algar32
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July 20, 2012, 04:25:27 PM
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I kind of figured it would work out something like this. You seem to have some insight on the matter. Are you saying that a large retailer couldn't use bitcoins? If they did would they reimburse the state in taxed bitcoins (obviously they would not accept them)? Or would they be forced to convert in to USD and then pay the state in that?  I think that unless major online stores start doing it many could easily get away with it because there is not legislation on taxing bitcoins (or how one should go about turning them into usd and paying the feds) is there? But there will be legislation on taxing goods.... I don't know, Kind of confusing for me to try and think of how it would pan out.

ehh sorry for the rambling^^^... Let me know what you think though. Thanks.

Hey, you got 5 posts! Smiley

I don't see any reason why a big retailer couldn't use bitcoins, but there's no magical exemption from taxation for transactions that occur or are denominated in currencies other than USD. If the "we didn't use dollars" trick worked, we'd all be using Mexican pesos or Canadian dollars or whatever and giving the tax guys the middle finger.

Using alternative currencies introduces a little complexity - partly because of exchange rate issues, and partly because it's just more work on the part of the tax authorities to learn about the new tricks - but there's a giant difference between behavior that's legal, and behavior that's tough for the authorities to punish.

BTC's obscurity and (IMHO oversold) "anonymity" mostly touch that second angle - the "you can't see this, and you can't punish me for doing things you can't see" argument - but that really doesn't last very long, and ultimately it's a practical argument, not a legal argument.

To answer your literal question, if Walmart woke up tomorrow morning and decided to do business in BTC, they'd still have various payroll/income/sales tax obligations to the tax authorities, and they'd need to exchange BTC for USD in order to satisfy those obligations.

We don't need any extra legislation, the existing tax rules apply no matter whether you're selling things for dollars or for bananas or for BTC. There's a popular (and wrong) perception that barters or exchanges aren't taxed - that's not what the law says. The practical side of that is that if two people engage in an effectively invisible transaction, and nobody squeals, the likelihood of being caught for tax evasion is close to zero.

So if you go deliver something for me and I make you some tacos for dinner in exchange, nobody's gonna notice, and nobody goes to jail.

But if UPS and Taco Bell made the same deal - Taco Bell gets to ship things for free, and all of the UPS drivers get to stop in a Taco Bell and get free lunch every day - IRS would be all over them, and they'd have to report the transactions, converted to USD equivalents, on their respective tax returns as income and expense items.

Just so. And it would apply to individuals as well. If you make a pile of CHF or Wynn Casino checks, you don't get much mileage by saying they're not really taxable money--even if you manage to spend them in the US as "barter" without ever converting them to dollars. If the taxman finds out, he will want them declared as income and taxed.

While an individual or, say, a mob cigarette dealer, might get away without paying taxes much of the time through obscurity, you're absolutely right that any major retailer will end up mostly complying with the law--and there will be taxes.

Yeah agreed. The feds have their noses in everything nowadays  Sad. I really hope they don't start taxing online purchases. Fortunately for me I could always send my things to a neighboring state, but that is a hassle as well.

blakdawg
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July 20, 2012, 08:46:35 PM
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Yeah agreed. The feds have their noses in everything nowadays  Sad. I really hope they don't start taxing online purchases. Fortunately for me I could always send my things to a neighboring state, but that is a hassle as well.

The sales tax fight has been going on for a long, long time. In 1992, the Supreme Court ruled that (under the law at that time) a state could only force a company to collect sales tax if the company had a physical presence in the state. That's why Amazon has warehouses just outside the California border, but they've been careful to avoid locating inside California, because that would have given California the power to force Amazon to collect sales tax on sales made to California residents.

However, Congress has the power to change that rule, and they've seriously considered doing so. State and local governments are hurting for money, and local retailers lose business to out-of-state companies partly because of the sales tax rules.

So . . . we've got a situation where lawmakers would find it helpful to raise more cash, they can do so without apparently raising taxes (because they're just extending the application of an existing tax, not changing the rate or introducing a whole new tax system) while appealing to fairness and economic protectionism, which is a pretty attractive combination.

And, technically, at least in CA, we've been obligated to pay use tax on Internet purchases, but it's been based entirely on voluntary self-reporting, so nobody does. But that makes it a tough sell for a lobbyist for an out-of-state company to go to a legislator and say "hey, it really would be great if you'd avoid shutting down this cool opportunity for tax evasion."

Once upon a time, the mail order companies could say "oh, it would be such a nightmare for us to keep track of every funky jurisdiction and their weird tax rates and rules and stuff, it would kill our business if we had to do that" but it's getting tougher and tougher to make that argument with a straight face, given the ease of automation and the use of computers to take and process orders.

My bet is that within 5 years - maybe as soon as 2-3 years - most of us will be seeing "sales tax" line items applying our states' sales taxes when we purchase from out-of-state Internet retailers. The only trick that's likely to work long-term will be to have a friend or alternate mailing address in a state with no sales tax (AK, DE, MT, NH, OR).

That might lead to some increased use of BTC, since BTC doesn't have a "billing address" like a debit or credit card does. My bet is that, in this new future that includes interstate sales tax, that if you make an Amazon purchase with a CA billing address and an OR mailing address, that Amazon will apply CA sales tax because that's safest for them. (If they don't charge the tax, and CA's tax authorities take them to court and win, Amazon would be forced to pay the sales tax even though they didn't collect it, and they'd need to chase down the buyers a few years later and ask if they could pretty please be reimbursed. Good luck with that.)

But, since BTC doesn't necessarily include the notion of an "account" or a "billing address", the retailer could pretty plausibly claim that the only information they had about the buyer showed that they were a resident of the no-tax state, and hence the transaction wasn't subject to tax.

So perhaps I disagree with my initial post, a little bit.

The other alternative would be for the tax rule(s) to be rewritten to say that the seller must charge sales tax at the rates applicable where they are located.

A lot of similar games are played with cigarettes and cigarette taxes - that's been going on for decades at least. I recently saw correspondence where CA tax authorities were seeking payment of use taxes from a CA resident who'd been buying mail order cigarettes from a retailer in the South (I forget the state) to avoid paying CA's cigarette taxes. The CA tax authorities had gained access to the retailer's transaction database and sent the CA resident a detailed list of all of the cartons of cigarettes they'd purchased with a corresponding list of taxes they said were due. It would have been an interesting case to work on, but the amount of money CA wanted wasn't high enough to justify spending $ on legal fees. Sad See, for example,
 http://abclocal.go.com/kgo/story?section=news/7_on_your_side&id=7945096 or
http://jan.ocregister.com/2011/02/02/buy-cigarettes-out-of-state-pay-the-tax/53946/ for other examples.

ben-abuya
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July 20, 2012, 09:20:35 PM
 #11

The proposed bill is available online:

http://www.gpo.gov/fdsys/pkg/BILLS-112hr3179ih/pdf/BILLS-112hr3179ih.pdf

The bill would allow states to charge sales tax on the delivery address, and if there's no delivery address, on the billing address, so in most cases Bitcoin wouldn't help here, unless the whole operation was off the books. On the other hand, businesses with less than $1 million in out-of-state sales are exempt from the bill, so you might see a lot more small Internet stores popping up to cater to customers who don't want to pay sales tax.

http://lamassubtc.com/
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July 20, 2012, 09:48:27 PM
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Good analysis Ben, I think this tax will not be affecting BTC for the most part, since the use of them will probably rise from smaller-scale vendors.  Could you imagine large-scale acceptance of BTC as payment?  Makes me wonder if it'll turn into revolutionary legislation, or a nation-wide crack down against non-government-backed currency.

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