> "If we go out to Westminster to go to Costco to buy sodas for employees in the office in Denver, we're on the hook to pay the difference between the sales tax in Westminster and the sales tax in Denver," said Stefan Ramsbott, 303 Software's co-founder.
Is this supposed to be a joke?! Seriously, what kind of bullsh.t is this?
I accept having to pay VAT and customs when importing stuff from another country, but from another city in the same country?
Sorry, but the way I see this is as a perfect thing to (ab)use as a government if you want to crack down on someone... don't enforce it, only when doing a "random tax compliance audit"...
No, it isn't a joke. 'Sales tax' which is not quite like VAT but close, is a bundle of taxes with components from a variety of interests, in the Bay Area for example there are bits for infrastructure improvement, Metro and public transportation fees, county initiatives, and city initiatives. It is charged based on where the item was bought.
There is a companion tax called 'use tax' which mirrors the components of sales tax but it specific to the place where something is used. The 'problem' that use tax was created to solve was that people would go to the city or state next door and buy things at one tax rate, for use in an area where they were also available but at a (generally) higher tax rate. Use tax laws give cities and states the power to collect the difference in taxes from the user.
It is nearly impossible to enforce, but it is a useful 'kicker' in an audit of an entity that keeps good records.
This is virtually universal for sales taxes in the United States -- they're all paired with "use taxes" which you're supposed to calculate and remit yourself. It is, far and away, the least complied tax in America. People occasionally get prosecuted for it, largely when a high-dollar transaction is intentionally effected in a low-tax jurisdiction to avoid sales taxes. The canonical example is rich folks in New York buying art in Connecticut.
This is technically true for MOST taxes in the USA. Generally municipalities have reciprocal agreements with each other, but when tax is fixed at a state or municipality level, you generally are supposed to file proof of tax payment in the location of purchase, and that is then generally applied as a credit against any tax burden imposed on the place of use. A perfect example is income tax in the US if you work in one state, but reside in another.
It's inefficient, but how else would a local tax scheme be at all enforceable?
Just thinking about Scotland independence vote. Could see that kind of thing within UK soon depending on which way it goes. That is still a national boundary though.
It wouldn't be within the UK, since a 'yes' vote implicitly causes the UK to cease to exist.
It would be more like Norwegians crossing the border to Sweden to stock up on cheap beer - which already happens. I believe you sometimes see similar things in Ireland at the Northern Ireland/EIRE border, depending on VAT and currency exchange rates.
> The USA recognizes state law as a defends against Federal tyranny.
In this case, the law allows for local tyranny. Just imagine e.g. a 30% sales tax - as long as you live in the city, you have no way of getting around this tax: "If you can't afford to move... well, not my problem"
Are you aware that if you live in a city, you can vote? If a city where to impose 30% sales tax, I can't imagine any supporter on the council or whatever form of local government that city has would last past the next election. People would also be checking local laws for recall elections as well.
ps -- and if you can't be arsed to vote, then don't bitch about the results
To add to the other replies, one type of purchase in the U.S. where sales tax / use tax is universally pursued, is auto purchases. Plentiful (ubiquitous), "big-ticket" items.
Try purchasing a car in a state having a lower sales tax rate than your own. You won't escape your local jurisdiction's tax rate.
As much as I find these taxes ridiculous (and also hard to predict for a business owner), Couldn't they just add 3.62% to their billed costs to cover those expenses? On a $100k software gig, this would be just $3620 or so. Round it to $105k and they should be pulling in the same amount. On $10k it's just $362. So that would maybe shift a $10k project bid to $10.5k to cover those taxes and still bring in the same net to the company. Would that really make them uncompetitive? "Cost of business" and all that?
Hi folks, this is Matt from 303 Software, the dev shop in the article. Rexreed, you're right. Thing is, I don't even mind paying the tax going forward. We'll just add the 3.62% to our invoices. What I object to is having to pay back taxes, penalties, and interest on this obscure tax while the City gives tax breaks to out of state companies.
I don't think the issue lies so much in tacking on a bit extra to cover the tax as much as being subject to it without knowing. It doesn't seem unreasonable to expect that building an application for another company would be considered a service. They may have done the research and discovered that service providers aren't required to collect sales tax and moved on. The tax code is such that you can't expect to understand every little component of it unless it is your full-time job.
Why are these taxes ridiculous, unless you don't support the idea of taxation at all? Lots of economic activity gets taxed, and fundamentally, if we want to have nice things (roads, utilities, public education, police, court system, etc) someone has to pay for them. It's more than reasonable to want businesses -- which use many of the above, and crucially rely on eg good public schools to get parents to live and work near the business -- to chip in.
That said, saying a 3.6% tax makes a software business uneconomical is pretty silly. If that makes the difference between profitability and unprofitability either the business was mostly investing profits internally into growth or was nearly uneconomical anyway. It mostly sounds to me like bitching that the owners may have to settle for Hawaii instead of St Barts this year.
For me, it's not that these taxes, in particular, are ridiculous, but that the tax code is so freaking complicated, that I sometimes need a CPA to double-check my records (AMT, odd-ball deductions, etc). And this is for my personal income taxes - it's even worse for business owners.
You don't have to be against taxation in general to think a specific tax is ridiculous.
Ok, a 3.6% tax is fine, I agree. How about five 3.6% taxes? Oh, now it's just being ridiculous right? Except that's exactly what the tax creep ends up being when you have politicians drunk on spending just to spend.
The US tax code is a perfect example of how this works.
Does anyone have a list of which states consider web/software/tech services to be subject to sales tax? I know Texas does [1], but haven't found an overall list.
Quick back of the napkin here. $35K a quarter. If that is the sales tax at 3.62%, then this company is bringing in just under $1 Million in revenues a quarter.
Its possible that its not what the full $35K is for, but if you are bringing in $4 Million a year in revenue, you can probably afford a qualified accountant to take care of this stuff and I can't be all that sympathetic.
This article doesn't say anything about it, but I wonder how these businesses were handling their taxes in the first place. Helping you avoid these scenarios is one of the things a good CPA firm does.
This is Matt from 303 Software. We pay our taxes in full and on time. Our two accounting firms and one law firm had never heard of this tax until the auditor showed up at my door. And sadly we weren't the only ones in Denver who thought they were in compliance.
Some states do tax services (sometimes with some exemptions). Other states don't tax services, but do tax sales of digital goods, such as iTunes downloads, ebooks, or apps. There's no blanket "sales tax = physical goods" rule (it's not clear why there would be, especially in cases like ebooks vs. paper books).
Is this supposed to be a joke?! Seriously, what kind of bullsh.t is this?
I accept having to pay VAT and customs when importing stuff from another country, but from another city in the same country?
Sorry, but the way I see this is as a perfect thing to (ab)use as a government if you want to crack down on someone... don't enforce it, only when doing a "random tax compliance audit"...