This is an interesting opinion piece about the Marketplace Fairness Act. Value Added Tax in the U.S. ain’t gonna happen anytime soon.

Over the past years, there have been various calls for a value-added tax in the United States; the explosive growth of online commerce should renew that debate. The VAT is well suited to online commerce because it creates a chain of revenue that goes from vendors to wholesalers to final customers. Of course, a VAT would be inherently disruptive of state-sales taxes and would require radical changes at the state and national levels. We appear nowhere near that.

via Online sales tax: a good idea done badly | The Edgy Optimist.

The New York Times published an insightful article, see http://www.nytimes.com/2013/04/29/us/politics/bill-on-sales-tax-for-internet-purchases-divides-republicans.html?smid=pl-share

So you know, there is going to be a vote on today the Senate approved an important first step towards a cross-state sales tax for online purchases. More voting is expected in the course of this week. It is yet unclear when the House will pick this up.

The current rule is that a buyer generally must pay use tax on all online purchases that are shipped from another state. The purchaser generally must report the use tax on his income tax return (err… this seldom happens). The new rule will be that the online retailer must collect sales tax of the state of the purchaser – no more fiddling with ‘use tax’ on the annual income tax return.

This mechanism is not unlike the “distance sales” in the EU VAT world, except that Internet retailers with out-of-state sales less than $1 million a year would be exempt. And it creates a filing requirement in 50 or so states (approx. 9000 sales tax regimes!), in stead of ‘merely’ 26 member states. The proposal creates a significant increase of compliance requirements – this is why the so-called sales tax bolt-ons in an online seller’s accounting system make so much sense.

Back in 1992 the Supreme Court’s ruled in Quill v. North Dakota that forcing businesses to collect and remit taxes to jurisdictions where they have no physical presence was too big a burden. This proposal seeks to overturn that decision.

Review & Outlook: The Internet Sales Tax Rush – WSJ.com.

UPDATE:

More in the New York Times: http://www.nytimes.com/2013/04/23/technology/internet-sales-tax-gains-ground-in-senate.html?smid=pl-share

The White House approves: http://www.weeklystandard.com/blogs/white-house-endorses-internet-sales-tax_718208.html

Howdy y’all!

I was not aware at all that there is a real, existing proposal to introduce a real VAT in a U.S. state. Luckily T. Dan Tolleson highlighted this development by writing a commentary on Texas House Bill 3742 in “The New American”. To be fair, it is more a rant than a commentary. And a simple Wikipedia search for VAT would have been so helpful for him. Or just a brief glance at the various postings in the VAT Blog. Hey, if he’d sent me an email I’d be happy to discuss VAT!

The writer is helplessly entangled in the misunderstanding that VAT is a cost of business in every part of the supply chain. And that VAT therefore a “hidden” tax is, charged from the manufacturer to the distributor and from the distributor to the retailer, without any visibility to the end consumer. Mr. Tolleson, that is not true! If you want VAT to be visible to the end consumer, just let him take a look at the VAT line on the receipts he receives from the cashier! Exactly the same as with sales tax – there is no difference. Actually, from the perspective of the end consumer, there is no difference at all between a VAT and a retail sales tax. If you want VAT to be added on top of the net amount, by all means design a VAT law that requires the same.

The odd thing though is that Mr Tolleson has been working for “Americans for Fair Taxation” - a group that aims to replace the income tax with a national sales tax. So he should know at least something about VAT…

All this aside, what a great initiative of Representative George Lavender to throw out all the petty indirect taxes (certain state sales, use, excise, franchise, severance, production, occupations, gross receipts and inheritance taxes, as well as certain local sales, use, excise and ad valorem property taxes) and introduce a real VAT at a low rate. Australia did that at the time of the introduction of their GST (which is basically the same as VAT). It works!

Texas House Bill 3742 is here: http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=83R&Bill=HB3742

You will have seen my a-typical posting earlier this month “VAT = Passive Aggressive Tax?”, with comments along the same line.

Watch this space for updates.

See here for the commentary in the New American: Texas VAT Bill Would Threaten State’s Prosperity.

A PAT is

“a tax that Congress proposes to implement yet is already in place, but concealed from the view of the taxpayer.”

I thought that it would be good to share some anti-VAT sentiments as well. We have seen the arguments contra VAT before – some of them are valid, others depend on your political philosophy and then others are nonsense.

The point though about VAT being a ‘hidden’ tax is a somewhat valid one. It is not true that VAT is entirely hidden, because it appears (voluntarily) on most retail receipts. See for example here:

But in advertisements, price-lists etc. etc. that are published to individuals, by law VAT must be included. And, rate increases aside, individuals could not care less about VAT. As a result, they generally don’t feel the burden of a VAT in their wallets – which is quite different from the U.S. sales taxes, that are added at the register. Want to buy a hamburger here in the U.S. at the reduced price of $0.99? Pay $1.03!

I wrote earlier about this issue on a number of occasions, see for example here: http://www.us-vat.com/blog/?p=91.

“It’s the most insidious of all taxes, because it is built into the price of everything and consumers can’t see how much of the price is due to the tax. When taxes rise, prices rise, but consumers mistakenly assume that’s just market forces at work.”

If you are open to anti-VAT arguments (and I think you should), have a look at the link below.

Value Added Tax: the most insiduous of all taxes | Tax Replacement Soldier.

Comments are welcome!

“During the past 50 years everybody agreed that a VAT would be introduced within the next 5 years” – A former colleague

William Gale and Ben Harris of the Urban-Brookings Tax Policy center have published a report that considers how a value-added tax could be designed to help address the nation’s fiscal challenges. It would help reduce the deficit by $1.6 trillion over the next 10 years, and, they conclude, VAT raises revenue in a manner that does not distort saving and investment choices.

They write:

“We propose a value-added tax (VAT) to contribute to the U.S. fiscal solution. A 5 percent broad-based VAT, paired with subsidies to offset the regressive impacts, could raise about 1 percent of GDP, or about $160 billion, per year.”

Have a look at http://www.brookings.edu/research/papers/2013/02/create-american-value-added-tax, or download the report below.

Download (PDF, 196KB)

Hat tip to Peter Devlin.

Another blimp on the otherwise clear radarscreen of a VAT in the U.S…

The state sales tax rate is currently 5 percent; Huebsch says adding 8 cents would allow the state to eliminate income taxes. ”If we were just going to eliminate the income tax and raise our sales tax to match that, we would have to raise it somewhere in the neighborhood of about 8 cents. We would have to go to about 13, maybe 13 1/2 cents in our sales tax.” Individual income taxes equaled $7.0 billion in 2012 in Wisconsin.

via Scott Walker Floats Sales Tax Hike or Value Added Tax (VAT), most regressive idea yet. | Opinion – Liberal.