But What to Tax?
Deciding what to tax has always evoked controversy. In Pennsylvania, my home state, taxes were charged on everything except food and clothes. When I moved to Ohio I was surprised that even those items were taxed, but there were some exceptions. For example, if you bought something to eat at your local Mickey D’s you paid tax if you ate it in the restaurant. But if you took it out, you did not pay sales tax. One restaurateur told me that the tax was on the service provided for in-the-restaurant service.
A little over five years ago, Ohio joined other states participating in a Streamlined Sales Tax Project (SSTP), established to create uniform taxation policies from state to state, especially in view of the massive increase in Internet vendors. The 24 states that have joined this tax project include Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Vermont, Utah, Washington, Wisconsin, West Virginia and Wyoming.
While most citizens remain blissfully unaware whether or not their states participate, strange new laws have evolved. In Ohio, coffee sold without sweetener cannot be taxed. Coffee sold with sweetener (or any kind of sweetened soft drink) is taxable, because adding sweetener actually makes it a food. Yes, I’m telling you it’s true. Plus, all food vended from machines is exempt from sales tax in all participating states. I guess nobody figured out a way to manufacture a vending machine that shakes people down for that extra 7 cents.
Never mind the efforts people put forth to evade taxes at any cost. Ohioans living near Pennsylvania eagerly drive over the state line to buy clothes and save six or seven bucks per hundred dollars spent. Nobody talks about the extra money they’ve spent on gasoline getting there or the cash doled out at (tax-free) restaurants along the way. In the meantime, the SSTP did little to assuage the owners of brick-and-mortar stores who complained that they held an unfair burden of collecting taxes for products that their Internet brethren vended tax free.
Also, once a vendor opened a store within a state or even sent sales reps, its goods became taxable. NOLA gives the hypothetical example of Margo, living in Indiana and buying orchids tax-free from a vendor in Vermont. However, if the vendor in Vermont opens a store in Indiana, when Margo orders her next batch of orchids from Vermont, she has to pay taxes on them because the vendor has a storefront in Indiana. This situation is entirely within the parameters of Quill.
Several states, including New York and, yes, Ohio, make every effort to collect sales tax from people who buy goods from Internet vendors. The Ohio individual income tax instructions ask you if you have made Internet purchases without paying taxes, and if so you must calculate your sales or use tax debt and add it to your total taxes due. It adds up to big money, folks; the Streamlined Sales Tax Governing Board (SSTGB) reports that general sales and gross receipts yield almost 32 percent of all state taxes collected, second only to personal income tax. (By the way, our personal sales taxes used to be tax-deductible, until the tax changes undertaken by Ronald Reagan way back in the 1980s.)
And so, doing what they do best, several congressmen banded together to create a uniform tax so they can make some money on your purchases, no matter where you or your vendor reside. The Main Street Fairness Act’s writers based it on the Supreme Court’s invitation to Congress, at the end of the Quill ruling, to legislate a sales tax for non-local vendors.