Looking for Dough Under Every Rock

That’s what just about every state is doing these days, as the economy continues to stink, and tax revenues just aren’t keeping pace with the level of government spending to which we have all become accustomed.

Indeed, as reported by the Deseret News recently, $23 billion or so is just waiting for states to come and get it – from Internet retailers.

The tough part, though, is first figuring out a rationale to justify the darned grab.  That’s because of an old United States Supreme Court decision involving catalogue sales:  Quill Corp. v. North Dakota, which held that states can only hammer those retailers for sales taxes which have an actual physical presence within the state.  But leave it to all of those state Revenooers, out there, to creatively conceive of new ways to define “physical presence,” and go after all of those shekels which are eluding their grasp.

Recently, f’rinstance, the Texas Comptroller went after Amazon.com for a modest $269 million simply because a subsidiary operated a warehouse in the state.  Amazon, of course, continues to appeal.

Several states have come up with laws which hold that Internet retailers’ practice of paying commissions to marketing agents based within their borders constitutes a “presence” sufficient to enable the tax grab.

The great state of California thinks at least $200 million each year is eluding its grasp in the form of uncollected taxes related to online sales – some $83 million of it from Amazon.com alone!

“There are over 8,000 taxing jurisdictions in the United States,” quoth Jonathan Johnson, president of Overstock.com.  “We think it’s wrong that states are trying to cause out-of-state retailers to be their tax collectors.


So here come the more traditional “brick and mortar” retailers, complaining that the present situation results in an “unlevel” playing field, and impelling them to form The Alliance for Main Street Fairness, to lobby for more stringent laws applicable to what they perceive as the “raiders” – the Internet retailers.

Meanwhile, what money the government does collect often seems to slip through its fingers more easily than it should – like in the case of the Social Security Administration, which the Associated Press recently noted doled out some $6.5 billion in erroneous payments in 2009!

All told, something like 10% of the payments made by SSA’s “Supplemental Security Income” program were improper, according to Patrick P. O’Carroll Jr., the inspector general for Social Security.   And throughout the entire federal government, improper payments totaled $125 billion in 2010, up from $110 billion in 2009 says O’Carroll.

Makes you just want to run out and file another tax return, doesn’t it?

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He can be reached at 831-7288, welcomes comments at jquinn@ashleyquinncpas.com, and invites readers to consider his other commentary at http://blog.nolo.com/taxes/.