Thursday, June 09, 2011

Seriously? The ridiculous taxation system of the USA.

As a new small business owner, I've been getting a crash course in a number of areas, the most annoying and complex of which is in the tax structure.

There's the business structure, registering for a DBA or some other option, getting a tax identification number, then applying for a separate sales and use tax permit. Add to that, apparently we're all supposed to be keeping track of online purchases that weren't taxed on purchase and then report those purchases and pay them to the state even if it was from an out of state retailer. The state tax is set but each city or county might have a different rate and if you happen to do business with someone somewhere else, you need to keep track of that, file and pay the respective jurisdictions. I'm a one man show. It's getting ridiculous.

I get it that governments need money but surely there must be a better way to do it. Are there not scales of company size that could simplify things for the little guy? Is a general sales tax just too difficult to implement? Is it really necessary to create an equal burden of reporting for small business or sole proprietorships? This is a classic example of bureaucracy running ahead on law and policy while not enforcing, leaving many oblivious to the law until someone decides they're going to prosecute. The false sense of security many have leads to ambivalence about issues they don't even know affects them, then it gets heaped on. Did you know that even if you're not a business, you need to keep records of untaxed purchases and pay Texas the tax on those goods? It may not be enforced but it is law and as such it puts tons of generally law-abiding citizens on the wrong end of the law without their realization. That is bull and it needs to be remedied.

It makes sense that brick and mortar stores want a more equal playing field with out-of-state retailers, but why is the burden of tracking and reporting shifted to the consumer? When is the last time you bought a book for $20 and thought to yourself, "I need to record this transaction, calculate 8.25% and make sure I save that up to pay come tax season?" Yeah, I didn't think so.

So what can be done about it? The common response is to write your government representatives. I'm not so sure any of them care. I've written various reps from both parties about another issue and gotten cookie-cutter responses. Now I get their spam in my inbox to boot. For all the talk in politics of helping out businesses or those in need of help, it sure seems like not much actually gets done in the legislation.

There are people who are as fed up with the current tax system as I'm getting but it just isn't getting fixed. Add it to the pile of national debt, social security, health care, immigration, etc.

This is more of a vent than anything, I wish I had a good idea that both simplified the whole tax structure and allowed some amount of independence for states and cities. Unfortunately I don't, but we need to be thinking. This getting seriously ridiculous.

One of the things that led me to believe we are supposed to pay taxes on online purchases made from out of state vendors is this blurb in instruction sheet 01-922.pdf

Item 3. Enter the total amount of taxable purchases that you made for your own use. Taxable purchases include items that were purchased, leased or rented for personal or business use on which sales or use tax was not paid. This includes purchases from in- or out-of-state sellers, exempt items taken out of inventory for use, items given away and items purchased for an exempt use but actually used in a taxable manner. Taxable purchases do not include inventory items being held exclusively for resale. Report whole dollars only. Enter “0” if you have no taxable purchases to report.

There's another place I saw corroborating that assertion in a FAQ located here.
To the question "What "purchases" are subject to use tax?", the answer was as follows with my emphasis in bold:

You used property purchased from an out-of-state retailer. In general, if you purchase a taxable item from an out-of-state retailer without paying Texas tax and use the property in Texas the purchase is subject to use tax and must be reported. If you paid Texas use tax to such a retailer, you are not required to report the tax. That retailer must provide you with a receipt showing, among other things, the amount of use tax collected. You should retain a copy of the receipt showing you paid Texas tax.

So apparently it's more of a use tax than a sales tax but it's still a tax. I'm not sure what law backs this up but they sure seem to be trying to make a point and have an avenue to get their money.


Marc said...

I would like to read the actual law behind this. I can't see how Texas can charge their state sales Tax on items produced and sold from other states. I just don't buy that. If this would even be an issue it would make more sense that the State Tax from the state the item is being sold it would be the one you would have to pay. Texas is out of the loop on this transaction therefore I would be shocked if this was actually what that law read.

E. Setter said...

Yeah, it is a little suspect. From what I've read, the law is under contention as the main issue being debated right now seems to be whether out of state stores that just have shipping distribution hubs in Texas are subject to the tax. I'll add on to this post the tax docs that I'm referencing when I get a chance. There's always the possibility I misread... those being tax documents and all :D

raydetwiler said...

You do know there is no state tax in Texas, right?
I've had my taxes done by 3 different CPAs over the last 3 years and none of them asked for online purchase tracking.

And you don't necessarily need a tax ID number, you can use your social for most things. :-D
Unless you are selling a lot of products. (the non white powdery kind that is... Cause we all know there is no tax on that)