HOLT UNCENSORED #108
by Pat Holt
Tuesday, November 16, 1999:
NOTE AND LETTERS
Well, we're traveling this week and it's a good thing. So many letters have
stacked up that it's time to just devote the whole column to reader
commentary, which often acts as a "real" column anyway. See you Friday.
Well, we're traveling this week and it's a good thing. So many letters have stacked up that it's time to just devote the whole column to reader commentary, which often acts as a "real" column anyway. See you Friday.
Dear Holt Uncensored:
RE: Borders "slithering" into Santa Cruz (#107): I wonder if the Borders corporate honchos really know what they could be getting into. Small towns, particularly politically aware ones like Santa Cruz, can effectively boycott a new shop if the will is there. In Mill Valley, Marin County, Starbucks was deterred from predatorily "slithering" into town partially by promises of just such a boycott. In the fabled Haight-Ashbury district of San Francisco, where a Thrifty Store-in-construction was not-so-mysteriously burned to the ground a decade back, the anti-chain message is even more pronounced. Nobody should condone arson, but a concerted, vocal promise to avoid patronizing a chain - again, in a small community where such a campaign will be visible - can put a big enough dent in any profit margin to severely reduce the incentive to invade an unwelcoming community. Borders may have currently be feeling they've already sunk too much cash into this to turn back, but they could be made to throw good money after bad. Go Santa Cruz!
Dear Holt Uncensored:
Thanks for the update on the recent Santa Cruz battle. It is truly unfortunate that the City Council did not act sooner to limit store size, but they had to do what they did or face an ugly lawsuit. It was interesting to watch the hearing as most of them admitted that they did not want to do what they believed they had to do--at least they are aware of the implications of "too little too late." Now it is up to the consumers--I only hope that the lure of reduced prices will not be a temptation that cannot be resisted.
Aptos CA-based co-owner of A Clean, Well-Lighted Place for Books
Dear Holt Uncensored:
NPR reported this morning that the Wall Street Journal has sued the Small Street Journal for trademark infringement.
The Small Street Journal is a microjournal published out of a log cabin in Newburgh, Maine. It features literature and art by local kids and it is a freebie distributed only in the Newburgh area. Its only revenues come from ad sales.
Shades of Bambi meets Godzilla! I would never have confused the Wall Street Journal with the Small Street Journal...until now.
Dear Holt Uncensored:
I would like to respond to the flurry of letters opposing a national sales tax on Internet and mail order commerce. I believe that all of the writers are either wrong or so Utopian that the effect of their argument is to reinforce the status quo (which is terribly wrong).
Albert Henderson and James Lawton argue that books should be exempt. Certainly this would level the playing field in our industry. However it would not solve the unfair nature of the Internet tax exemption for other commodities. The trend in sales tax collection has been to include more products (such as books), and to get state legislatures to agree to this exclusion is unrealistic. Probably a waste of time.
Ed Hopkins believes we should support the continued Internet tax exemption, because Americans are overtaxed. This is fertile ground for an endless debate which I will avoid at this time. Suffice it to say that state legislatures will decide how much tax they need to fund their services. If one large venue is excluded, and the Internet is becoming huge, then this will put a greater burden on existing venues. Thus we can logically expect community-based businesses to have increased taxes to support the Internet exclusion. Better to spread the tax around in a fair and equitable manner. If legislatures feel that Americans are overtaxed, they should reduce the taxes across the board, not create privileged "Cayman Island" type venues such as the Internet.
Jerry Huling feels that the talk of communities losing their taxes is hysterical and that the Internet is creating more wealth and more taxes. Certainly some people are become fantastically wealthy from the Internet. And this may create some additional income taxes in some areas. However he minimizes the huge importance of sales tax as a general source of revenue for states and localities. The sales tax is the largest supplier of revenue for states and the second largest for localities. There is no evidence that e-commerce is doing anything other than shifting sales, and the Internet is shifting sales from taxable venues to tax free venues. Furthermore the attenuation of community-based businesses will have a negative multiplier effect on community economies. Local businesses hire locally. Internet businesses don't. This observation seems obvious to me. To label it as "scare tactics", as Jerry Huling has done, seems, in itself, to be a scare tactic.
Finally Linda Maloney argues that the sales tax is a regressive tax and we should fight for its elimination, not its expansion. I would have to agree that this tax is not the best tax in the best of all possible worlds. However it is not entirely regressive, since food and housing is generally excluded from the tax. Less affluent people pay a higher percentage of their income for these necessities. Thus these exclusions mitigate the regressive nature of the tax.
One point that is unarguable is that the exclusion of Internet commerce from sales tax is simply a tax break for yuppies. All sides of the argument admit that the people who purchase on the Internet are of a higher income. The exclusion leaves the burden of tax payment on lower income folks. Better to spread out the tax to all venues until a system of taxation can be found that satisfies the noble moral sentiments of Linda Maloney and others, myself included.
The tax exemption on Internet commerce is not only bad for community-based businesses. It is bad for communities. It is even bad for the Internet. Right now, Internet commerce is making decisions based on tax evasion, rather than on what is best for their business and their customers. It's a bad deal for everyone.
Cody's Books, Berkeley
Dear Holt Uncensored,
A recent letter, written in response to your column about Internet sales tax, said, "In the case of e-commerce, it can be reasonably argued that much - if not most - e-commerce represents additional sales, not a relocation of sales. It is the taxation of this newly-generated wealth that provides governmental entities with increased revenues. "Scare tactics like fewer police and children sharing textbooks in the dark insult our intelligence."
Actually, the writer is misinformed with respect to books, which represent a substantial portion of e-commerce sales. Book sales in this country have not grown in several years; the changes have involved a shifting of where the books are purchased. It is exactly a relocation of sales in our business, away from sales tax collecting and paying entities to internet giants who purposefully practice sales tax avoidance. And if e-commerce retailers are allowed to compete unfairly in this manner, more and more retailers -- not just bookstores -- will go out of business, and with them goes their monetary contribution to the community. That's not scare tactics, but it is scary.
One further point, made by others as well. While a sales tax is considered regressive by many, uncollected sales tax on the internet is little more than another tax gift to people with the means to pay it. Imposing sales tax on e-commerce is hardly regressive to folks who have invested thousands of dollars in technology products and services.
Landon Books, Mill Valley
Dear Holt Uncensored,
In response to John Gear's letter in HU#106 about getting books exempt from sales tax: This would be a great boon to independent booksellers and book lovers everywhere, but it does nothing to address the larger problem of chains and online stores undercutting locally-owned independent businesses. What about your local music store, video store, hardware store, gift shop, card shop, office supply store, clothing store, etc? All are suffering from unfair (in the sense of sales-tax-free) Internet competition, and the character of our neighborhoods suffers as much when these kinds of independent stores go under.
In addition, the more sales tax exemptions we institutionalize, the more we reinforce the legitimacy of the sales tax itself. This is the most regressive tax there is (poll taxes having been outlawed): in percentage of income, it hits poor people the hardest. What if sales tax disappeared, and was replaced by progressive local income taxes? Or a luxury tax on big-ticket consumer items? It's worth a thought.
Dear Holt Uncensored:
I wish the issue of sales tax on the Internet was simple as some of your readers make it seem. The unfortunate thing is that forcing sales tax collection on all sales will only strengthen giants like Amazon.com that can afford to pay the $100,000 or more for the software required to collect sales taxes in the tens of thousands of jurisdictions that levy them nationwide. Yes, it is simple to say, I collect sales tax where I sit, but a small independent publisher like us (Lorica Publishing, Atlanta, GA) depends on mail-order sales and requiring us to collect sales tax on all sales would be a nightmare. Don't forget, most mail-order and Internet sales have to charge shipping, which more than covers the difference collecting sales tax would make. I wish sales tax was simple, but then again I don't because I work days publishing expensive newsletters on sales and use taxes to help well-paid professionals negotiate the minefields of state and local taxes.
Anyway, this is an interesting debate. By the way, the governors don't necessarily hold the power here. Universal sales tax rates are opposed by local governments who want to get all that they believe is coming to them. And besides, there could be constitutional issues involved is there are different tax rates for the same transaction based simply on whether an item is bought at a brick and mortar store or a virtual one.
Holt queries: Part of the problem is the confusion of what NEW taxes mean since there doesn't seem to be any OLD taxes charged especially when it comes to SALES taxes. Perhaps you can elaborate on this
Richard Jarvis answers:
Basically, the moratorium says that a state cannot put a transactional tax into place that just applies to Internet transactions. For example, if I buy something on the 'net and the state wants to tax it, it can only do so if that would otherwise be taxable in the state. There can't be any surcharge for electronic commerce, access charge, or special sales tax for Internet taxation. The law does not affect computer access and similar taxes already in place in some states nationwide. What it does do, however, is keep states from passing new taxes in that class. Thus the distinction between "new" taxes and simply sales taxes.
By the way, all sales made over the 'net are technically subject to "use" taxes in many states. That applies when you make a purchase and don't pay tax on it for whatever reason, typically when the vendor doesn't have to collect tax in your state. I would like to know how many of your independent booksellers buy office supplies, computers and other items over the 'net and how many of them actually send the state where they are located a check for the use tax they owe on those transaction. In fact, it is these big ticket purchases that are really stinging the states. When Mr. and Mrs. Jones buy a new computer for the family and they order either by mail or over the 'net, they are unlikely to pay the use tax that they should pay under the law in most states. With a typical computer purchase costing $3,000 and sales tax rates of 7%, that represents a loss to the state of $210. Think about how many computers Gateway, Dell, and others are selling and you can see where the real money is from the states' perspective. Legally, we all owe use tax on any purchases we make that don't have sales taxes applied to them by the seller.
If you look at the U.S. Supreme Court decision in Quill v. North Dakota, the court found that the Commerce Clause only allows states to force vendors to collect sales and use tax when the seller has "substantial nexus." In other words, the court says it would be an unfair restriction of trade to force sellers to collect taxes in states where they receive no benefits from those tax dollars. In the past, states have focused on mail order sellers and claimed that catalogs are delivered by trucks that use state roads and that the thrown away catalogs use up landfill space, etc. The High Court did not buy this argument in Quill and found that the mail order office supply giant did not have to collect North Dakota sales taxes on sales made into that state. Still, many expect to see this issue revisited under the electronic commerce guise. What the court will do then is anybody's guess.
Another isuse arises with having a special "e-rate" for Internet purchases. If I walk into my local Barnes & Noble and pay 7% sales tax but would only pay 5% on the same book purchased on the 'net, I think there could be an inherent problem in that situation. Treating the sale differently simply because it is electronic could raise some interesting questions in some states where state constitutions might prohibit such measures. There could also be some federal equal protection issues as well.
As you can see, it won't be easy. And we are entering a new world.
Final issue -- shipping. There really is little price advantage to Internet purchasing when you add shipping and it doesn't have the immediate gratification that goes with a retail purchase. The main advantage is convenience and, sales tax or not, it will remain that way. Local businesses need to find a way to compete on that issue and using the "If they only had to collect sales tax" argument is a nice smoke screen that denies the real reason why customers say they use mail order and e-commerce.
Dear Holt Uncensored:
I read your newsletter on the web, so I am somewhat late with this comment. But Germany is not really the utopia that Linda Maloney claims it to be in your column 101. I grew up in a middle-sized town in Germany, and in the '70's it was indeed a good place to be a book seller. And we readers had the advantage of it. I still fondly remember our neighborhood bookstore, Glock&Lutz, where I bought my first book. The store was full of old wooden book shelves, a great place to get lost for hours. And old Mr. Glock knew his customers, he even delivered personally the books that you ordered.
But that's in the past now. In the eighties a huge bookstore (Hugendubel) started to expand out of Munich, where it already had metastased into 9 stores or so. They opened a huge bookstore smack in the middle of the main shopping strip, reminiscent of Barnes&Noble, and soon after that many of the smaller bookstores that had offered a wide variety of books started to die off. Even with a fixed price for books, the large chain resellers have the advantage of large volume discounts in Germany.
If there is one thing that keeps the small independent bookstores alive in Germany, than it's a very well-developed whole-sale system. Anything in the German version of books in print can be ordered, and the ordered books are usually at the bookstore overnight. An internet bookstore can't beat that, and it gives small neighborhood stores access to a huge selection. Maybe that is also a possible approach for independent stores here in the States? Sheer geography might make it impossible to build a distribution system of similar efficiency, but what about a database for the stock of all the independent bookstores in a region, and exchange of books between the stores depending on the demand by the customers?
Dear Holt Uncensored:
Anita Barela from Los Alamos, NM, wrote: "Your reader, Darwin Holmstrom Dickinson of North Dakota , states the big chains carry the magazines in which he gets his articles published, so therefore he would prefer to support the chains."
The amazing leap of logic in the final clause astounds me. "Therefore he would prefer to support the chains?" What did I say in my letter that would possibly lead Ms. Barela to infer such a thing?
Even the base clause of that sentence is inaccurate. My letter focused not on my magazine work, which, as Ms. Barela pointed out, would thrive even if all the bookstores in the United States were shut down thanks to the newstands at grocery stores and gas stations, but the books I write for small presses specializing in motorsports. Such non-literary topics are beyond the ken of most independent bookstores. The dilema I brought up was that I do prefer to shop in independent bookstores, yet with rare exception, such stores do not support my work, either in book or magazine form.
I did not say the solution was to support chains. In fact, I distinctly pointed out that I knew of no solution. I did say any solution would involve creative thinking on the part of independent booksellers. Unfortunately, if such booksellers are going to form battle plans based on sloppy, inaccurate, and unrealistic assessments of the situation, much like Ms. Barela formed her opinion of my letter, I'm afraid such booksellers may be doomed.