Sales tax collection confusion: the State’s role

Sales taxes are often considered by conservatives the simple solution to taxation: i.e., a “flat tax” or “consumption tax.” They think that this will solve all taxation problems. On the surface, simplifying taxes seems, well, simple. However, as long as politicians or accountants are involved, simple will never happen.

The Dayton Daily News had a few articles about businesses charging the wrong sales tax in the wrong county. Many of these businesses had multiple locations, and some fall in both Montgomery and Greene County. Due to sprawl, the borders of the jurisdictions are confusing to many- and the reality is the roads you drive on to get to “The Greene” shopping center fall in both counties- yet only one is compensated for maintenance.

Reality is, internet shopping is hurting all county retail sales tax collections, nationally. While the few stores that may have their license in the wrong place may cost a county a little bit- Amazon is killing them.

I wrote about an option for a simplified National Internet Sales tax back in December of 08.

The Ohio sales tax rules are complex and full of loopholes. Look at the list of exemptions. It’s good to know that:

“Sales to a professional racing team of any of the following:

  • Motor racing vehicles;
  • Repair services of motor racing vehicles;”

are exempted. Go NASCAR! (that’s a joke).

The State had tried to get retailers to charge a sales tax based on where you live, further complicating sales of companies that deliver products- but that got rescinded before it fully took effect:

April 25, 2008 – Streamlined Sales Tax Effort Takes Step Forward

COLUMBUS, Ohio – Legislation signed by Governor Ted Strickland last week means that businesses engaging in delivery sales within Ohio will soon return to the state’s traditional way of calculating the sales tax: at the origin of the sale.

An emergency clause in the newly-signed bill – House Bill 429, sponsored by Rep. Bob Gibbs, R-Lakeville – allows Ohio businesses now charging sales taxes based on the destination of their Ohio delivery sales to switch back to the traditional “origin” method as soon as the start of next month if they wish. Merchants who moved to destination sourcing of delivery sales have until Jan. 1, 2010 to switch back to the traditional method, according to the new law.

The new law is, in part, a response to small business owners who considered destination sourcing more complex than Ohio’s traditional “origin” method. “This law balances the needs of small business owners with the goal of creating a more level playing field for all Ohio businesses when it comes to Ohio’s sales tax,” Tax Commissioner Richard A. Levin said.

The vast majority of Ohio merchants have always collected and remitted sales tax based on the location of their store. For them, little will change. H.B. 429 also means no change for out-of-state retailers selling into Ohio; they continue to collect sales taxes based on the rate at the destination of the sale, as they do today.

But the new law means big change for a relatively small group of merchants who engage in delivery sales of tangible personal property, such as furniture stores and appliance stores. Since 2006, Ohio had been gradually moving such merchants to “destination sourcing” of the sales tax – charging sales tax based on the destination of the delivery rather than the location of the store.

This transition was part of Ohio’s effort to become a full member of the Streamlined Sales Tax Project, a multi-state effort to harmonize sales tax rules across state lines and simplify compliance for multistate businesses. For years, the multistate group required states to move to destination sourcing in order to become full members….

Merchants who switched to the new destination sourcing system and who will now be switching back per H.B. 429 will eventually be eligible for compensation of up to $1,000 (for mandatory switches to destination sourcing) and $600 (for voluntary switches). The compensation won’t be available until July 1, 2009 at the earliest; more information will be available later on this subject from the Department of Taxation.

via Welcome to the Ohio Department of Taxation.

So much for a national simplification plan. And, now, the taxpayers are going to be paying for the changes in the law that never took place.

The reality is, the methods for collecting taxes in the State of Ohio are overly complex and could use a redesign. Each business location should have a unique tax ID number, complete with an online taxation profile- including e-mail notifications on what taxes are due and a simplified interface. One portal, all taxes, from employee wage and benefits, to sales and property taxes. All collected by EFT- and all with hooks for accounting programs to connect with.

The more time small business owners can spend working on making sales, instead of accounting for them, the better revenue will be for the State and our economy. Right now, this should be a number one priority for the State.

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2 Responses

  1. John Ise March 8, 2009 / 12:09 pm
    I think the point that Progressives need to come to grips with is that the maddening complexity of our so-called progressive tax system is, well, regressive. The merits of a flat tax (not really flat since low income earners pay 0 income tax) is theoretically everyone pays the same rate, no deductions, (perhaps for Charity), no loopholes, and the government raises revenue in the leanest, most efficient manner. Does anyone really believe that upper incomers and politically connected don’t manipulate the current complexity of our tax code for their own ends? What Progressives (count myself one) should focus on is on how we spend those revenues to address social and economic inequalities rather than focus on the tax code to achieve that end. The Economist Magazine compared the upper income earners in some countries who went from a graduated income tax to a flat tax and found that in the end, their tax burden really didn’t change.
    Other taxes (outside of income) should be designed around taxing those things we don’t like (carbon emissions, smoking, and why not even a fast food tax).

    Whew. I ramble as I contemplate doing my taxes.

  2. Jeff March 8, 2009 / 9:34 pm
    The DDN article on what county gets the tax confusion is an excellent illustration on how economically interwined Greene and Montgomery Counties really are, that they function, really, as one economic unit. People commute between the two, move between the two in massive numbers, and also do business in the two.

    A good argument for regionalizing public finance and some services.

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