Mahargdom

This story in the New York Times hits close to home for me. New York recently passed a law that we at BuildASign.com watched very closely. The law changed the definition of ‘nexus’ to include the receipt of referral fees within a state.

The article and bill are both interesting, but the underlying problem is much larger than what is presented in this bill. Most people have no idea how sales tax works or that it’s actually called sales and use tax. The ‘Use Tax’ portion refers to the obligation of users of goods to pay sales tax if the tax was not collected at the time of purchase.

This means, that if you buy a book from amazon.com and are not charged sales tax, you have an obligation to report use tax to your home state. The government doesn’t enforce this because it would be very difficult to hold people accountable and audit out of state transactions. Your state also can’t charge amazon.com for the sales tax because amazon.com is legally not within the state and the state can only tax those that have ‘nexus’ which is a fancy way of saying ’sufficient contact.’

This is a HUGE loophole in sales taxation and allows out of state vendors an enormous competitive advantage over instate vendors, which seems like the opposite outcome a state would prefer. As an example, Texas is currently charging an 8.25% fee for residents to purchase their Real Estate Signs from BuildASign.com (an Texas company) when they could buy the same product from any other state and not get charged that sales tax fee.

There are billions of dollars lost to states through this loophole and it will one day be closed off, but as you can see from the article, there are billion dollar corporations who will fight long and hard to maintain their tax advantage over the local guy.