Wednesday, September 28, 2011

The impact of online sales tax

It seems that Amazon will be collecting tax on California sales in a year, and I expect that to become the national norm. What might the impact of the tax be?

The US Department of Commerce estimated that online shoppers spent $165.4 billion in 2010 and Vertex Inc. estimated the average state tax rate as 5.5224% during the first nine months of 2010. That says states are losing around $9.13 billion annualy in Internet sales tax.

That may be a small portion of our 14.7 trillion dollar GNP, but it would pay the salaries of a lot of state workers (especially professors :-), which would help the economy and make a lot of people happy.

But, aren't sales taxes regressive, taking a bigger percent of a poor person's income than a rich person's? For sure.

If it were up to me, I would raise revenue with a progressive tax that came out of the pockets of those better able to pay (like me) and corporations that take advantage of unreasonable loopholes..

But we are talking about sales tax, and my guess is that a sales tax on Internet purchases is relatively fair -- less regressive than general sales tax. Online shoppers tend to be relatively well off. They have computers, broadband connections to the Internet, credit cards, can accept daytime deliveries, etc.

We need emperical data on this question -- it would make a good thesis or dissertation if economists have not already studied it.

On balance, I favor taxing online sales, but if it turned out to be as regressive as our general sales tax, I would probably change my mind.

Regressive taxes are a bad idea for a couple of reasons. Most directly, they make the lives of poor people -- little kids and adults -- less happy. But they also reinforce the growing economic inequality in the United States.

What do
Namibia, South Africa, Lesotho, Botswana, Sierra Leone, Central African Republic, Haiti, Colombia, Bolivia, Brazil, Guatemala, Honduras, Hong Kong, Paraguay, El Salvador, Chile, Panama, Papua New Guinea, Zambia, Niger, Swaziland, Gambia, Zimbabwe, Dominican Republic, Peru, Sri Lanka, Mexico, Costa Rica, Singapore, Madagascar, Mozambique, Nepal, Uruguay, Ecuador, Rwanda, Philippines, Uganda, and Jamaica
have in common?

According to the CIA World Factbook, they are the only nations with higher GINI coefficients than the United States, suggesting that their income inequality is even greater than ours. That is not very good company, and it does not make for a comfortable, sustainable place to live.

California's Internet sales tax will reshape retail

Amazon VP Paul Misener
Two months ago, the California legislature passed a law requiring Amazon to collect sales tax, and Amazon retaliated by starting a state referendum drive to repeal the law and dumping thousands of California-based affiliates. Now, it seems a settlement has been reached in this battle. It's been reported that Amazon will drop its referendum drive in return for a one year moratorium on collecting sales tax.

If you live in California, your Amazon purchases will remain tax-free for the next year, but will be taxed after that.

That will help the state budget. Amazon VP for global public policy Paul Misener said that Amazon would also "welcome back tens of thousands of California-based advertising affiliates," which means yet more tax revenue for the state.

I favored and predicted this outcome, but did not expect it to be settled so quickly. My guess is that other states will follow suit -- California is large and influential and thirteen other states are already in conflict with them over tax collection. The New York Times has also reported on Amazon's tax problems in other states.

In a comment on a previous post, Shava Nerad, suggested that the mechanics of tax collection from 50 states with different rates, forms and procedures would create a record keeping nightmare. She worried that confusion over forms and procedure would drive thousands of small mail order and catalog companies out of business.

The one year moratorium gives online retailers and states time to work out uniform, simple forms and procedures for tax computation and reporting. It seems that Amazon wants to work out such a solution. Misener says they will "work with Congress and the states to obtain a federal resolution to the sales tax issue as soon as possible."

Amazon should take the lead in designing the system. They have a large stake in having it be simple and smooth, and they have been running a complex online service since the mid-1990s. It sounds like a good Amazon Web Services application to me.

The implications of this compromise go beyond California. It tips the on-line/storefront balance, and will impact retail business throughout the nation. We might even see some Amazon stores.

Friday, September 16, 2011

US Ignite -- can the US develop innovative applications for the coming gigabit network?

In 1986, the US National Science Foundation (NSF) linked a few universities, creating a national network. The initial 56k bps links shown here were soon upgraded to T1s, and people began using applications like email, file transfer and threaded discussion..

As networks spread and increased in speed, new applications were invented. The majority of those applications were developed in the US, because we had more people using state of the art networks than other nations. Most international traffic came to the NSF backbone, where it was terminated or passed through to another nation.

But our infrastructure and connectivity lead has eroded, leaving us a typical developed nation, no longer outstanding. Nations with wide spread high-speed networks are likely to develop applications for the future.

Is there a way for us to regain momentum as we enter the gigabit era? Some US universities and cities and companies like Google have already moved in that direction. Universities are experimenting with high-speed networks and Google is connecting a few cities, but, can those efforts be connected and scaled up?

NSF hopes so. They want to connect the experimental gigabit networks at various universities and cities together to create a large enough user base to justify and spur application innovation.

The USIgnite effort is just getting off the ground -- they are now soliciting white papers and will soon hold a workshop.

For a discussion of US Ignite, check this post on Google Plus.

Monday, September 05, 2011

Amazon offers California a sales tax compromise

Two months ago, the California Legislature passed a law requiring Amazon to collect sales tax. Amazon refused, dumped all its California affiliate stores (costing the state tax revenue), claimed they were not operating in California and started a petition campaign for a ballot measure to overturn the law. In the meantime, they are not collecting tax, and when the measure qualifies for the ballot, the law will be temporarily suspended.

Now Amazon has offered to build two warehouses in California and hire 7,000 workers if the legislature will put the issue off for a few years. (Does the 7,000 include the affiliates they cut off or would it be the reinstated affiliates plus 7,000)?

I live in California and love it that Amazon is tax free -- often choosing them over another store for just that reason. Regardless, I think they should drop the referendum and start collecting sales tax and I predict they eventually will have to.

Here are a few reasons why (in no particular order):

  • Amazon asserts that an online sales tax would cost California jobs. I find their faith in low taxes as an economic silver bullet reminiscent of the Tea Party. It will cost some jobs and pay to create or maintain some others. No one knows the net change.
  • The California Retailers Association (Walmart, Barnes and Noble, etc.) says Amazon's refusal to collect sales tax cost California over 18,000 jobs and a $4.1-billion loss in sales resulting in over $7 billion in lost economic activity in 2010. I trust their figures about as much as I trust that Amazon gives a hoot about California jobs.
  • California loses jobs when consumers pay higher taxes and when Amazon affiliates are zapped, but we also lose jobs with the bankruptcy of Amazon competitors like Circuit City and Borders Books. The same goes for laying off teachers, state employees, and others.
  • I believe California needs added revenue and am willing to pay my share.
  • I worry that a sales tax might be a burden for the poor, but I bet Amazon shoppers are relatively affluent. This is an empirical question that Amazon could answer.
  • The early rationale for an online sales tax exemption was that it would allow Internet e-commerce to take off. Amazon has taken off.
  • Amazon thinks it might be cheaper to do a ballot referendum than to fight the law in court, but what about the cost of a referendum to the taxpayers?
  • The media and advertising business will surely like the referendum – both online and brick-and-mortar retailers will spend tons of money on misleading, simple-minded ads.
  • Amazon cut off their California marketing affiliates in order to claim that they had no operations the state, but seven California addresses are on the list of United States Subsidiaries at Amazon’s Web site.
Let me know what I have left off this list – on both sides.

California is a large, precedent setting state, and this battle has national implications. Wikipedia lists 13 states where Amazon is in a controversy over sales and use taxes. My fearless prediction is that the list will grow, and, in the long run, we will be paying tax on online purchases. That will change the retail landscape (and maybe Amazon will open stores when it happens).

Sunday, September 04, 2011

Get a free copy of Twitter for Good -- a how-to for organizations with social goals

When Twitter started up, its prompt question was "What are you doing?" A lot of early traffic was simple answers to that question -- interesting to your friends perhaps, but not particularly significant.

The prompt today is "what's happening?," which solicits a broader class of comment.

There are many stories of inventions that came to be used in ways their creators did not envision, and Twitter is one of those. In the preface of Twitter for Good, co-founder Biz Stone tells the story of James Buck, a photo journalist covering Egyptian demonstrations. When Buck was arrested during a demonstration he tweeted one word -- "arrested." The word spread via Twitter to his colleagues and diplomats, and within hours he tweeted again -- "free."

It is now clear that Twitter can be used for more than telling friends what you are doing. It has been used for disaster relief, political organizing, live reporting of events, as a broadcast medium for popular figures like athletes, actors, politicians and journalists, even, sadly, for coordination of terrorist activity.

Twitter for Good is a how-to book with tips and case studies for organizations and individuals that want to use Twitter for good. It's oriented toward social action, but many of the recommendations are also relevant to any organization that wants to use Twitter for public relations, marketing, and customer or community relationship management.

I have only skimmed the book, so cannot write a full, critical review, but, if it sounds interesting, you can get a free copy. Starting at 12:00 AM (midnight) on Tuesday, September 6, 2011 an electronic version of the book will be available for download at Amazon and Barnes and Noble. Click on the Kindle (Amazon) or Nook (B&N) edition, then purchase them for free. The B&N version is in ebook format.

The offer is good for 24 hours. If you miss the free copy, all is not lost -- you can enter to win a copy here.

Saturday, September 03, 2011

AT&T (and Verizon) hypocrisy

AT&T argues that their acquisition of T-Mobile would benefit the public because they would be able to increase their fourth-generation LTE coverage from 80% to 97% of the US population, but couldn't they do that on their own without T-Mobile?

It turns out they had an internal proposal to do just that. In a recent FCC filing AT&T estimates that they could deploy the approximately 44,000 nodes needed to achieve 97% coverage by the end of 2013 at a cost of $3.8 billion.

However, in the next paragraph they say that senior management had rejected the proposed build out since there "was no viable business case for such an expansion." The extra coverage was not worth even $3.8 billion to AT&T.

Yet they have offered $39 billion for T-Mobile. Part of that is to acquire T-Mobile customers, but those folks might not stick around since they had already decided against AT&T. Still, what alternative would they have?

That pesky competitor T-Mobile would be gone and there would be only two competitors remaining. Sprint was small and not doing so well. How long until there would be only one competitor? Sweet.

Lest you think that I am an exclusive AT&T basher, let me point out that I was a Verizon customer until last year when they treated me so badly that I left them for cable.

Furthermore, Verizon can match AT&T's hypocrisy. If you want to come unglued, check this post on Verizon<.a>.

We are toast.

 
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