Tax Break

John Fisher, international tax consultant

Archive for the tag “Sales tax”

Never judge a book by its e-ink screen

Books have a special place in the Senate's heart

Books have a special place in the Senate’s heart

Amazon is hardly ever out of the tax headlines these days. Following on from management’s mauling by a British Parliamentary Committee late last year and the developing Transfer Pricing dispute with the IRS,  last week all eyes were on Amazon’s reaction to the Senate’s passing of the heat-seeking, this one has your name on it A-M-A-Z-O-N, Marketplace Fairness Act. Although it is still far from certain that the legislation will get through the Cock Fight of the Republican-controlled House, the great e-tailer has been preparing itself for the day after Armageddon when Sales Tax (the US’s primitive alternative to VAT) will be charged on all e-commerce in the US irrespective of whether the seller has a “Nexus” in a particular State or, for that matter, any of the 50 States and  the District of Columbia.

As a child I was not one of the “Buy me” set so I suppose it is logical that, as an adult, I am not part of the “Must have” set. When it comes to electronic accessories, apart from the obligatory laptop and smart phone, the only consumer  device I possess is an Amazon Kindle. For the uninitiated, a Kindle is a book that lacks pages, a spine and a half-price sticker grafted onto the  front cover with irremovable super-glue.

The E-book, I am told, is the absolute future of reading.  With a Kindle you can, for as little as the price of  a hard copy from Barnes and Noble or Waterstones in a 3-for-2 deal,  have the digital imprint of the book of your choice (if the publisher has a contract with Amazon) delivered instantly all the way to your  bed or toilet seat.  And it is not just the immediate availability. The Kindle is so much more convenient than a book.

For a start, you can populate a Kindle with hundreds of titles so that, if you are traveling, you can read at least a hundred books on the plane, or in foreign business meetings or while your family is admiring the beautiful places you have come on vacation to see (we will get to beach-reading later).

Then there is the weight – the Amazon site told me that my Kindle would be as light as an average book. While I am aware that, having been around for over 3 years, my device should be looking for a partner to join it marching out of the Ark and there must now be lighter versions,  the weight claim just reminded me of all those economy fuel consumption tables car manufacturers stick on their advertisements (’50 mpg’ based on traveling through the Texas desert on cruise control at 45 miles per hour). My machine weighs in at about the same as a hardback copy of the Complete Works of Shakespeare with a piece of lead piping as a bookmark. And that is before I take into account the financially crippling leather cover with courtesy light (I suppose in case there is a power cut).

And what about that feel of where you are in a story? No longer, as you close your book, do you need to look at where the bookmark is located and think “Oh good! I am about two-thirds of the way through”. Now, with digital accuracy, you know that you only have 31% to go – although, on my antique piece of electrickery at least, I do not have any bloody idea what page I am on. And why have to flick back through the book searching for your favourite bit, if all you have to do is remember one key word like “decapitated” and the search function will take you there without delay?

But the best of all is the screen. Busy people have to snatch reading time. And that often means bedtime. I cannot count the number of times in my not-any-longer-so-short life when I have woken up in the morning to find my latest paperback lying on the floor next to me or spread across the pillow, a few pages unceremoniously creased, ready to be ironed out under a stack of telephone directories. If you have ever fallen asleep reading a Kindle, you may know that, while pages of a book can be approximately returned to their original form, it does not help to put a creased screen under a pile of telephone directories.

There was no "Do not immerse in water" warning in the instructions

There was no “Do not immerse in water” warning in the instructions

What about water? Electronic devices have a greater fear of water than the Ministry of Magic had of Voldemort. Have you ever tried luxuriating in a hot bath with a glass of wine in one hand and a paperback book in the other? Well, I have not, but I am told it is a delightful experience. While taking an E-book into the bath may not have quite the same effect on you as dropping in a mains-connected 3 Kilowatt heater  to warm up the water,  it will have the same effect on the Kindle. On the same lines, although I am not much of a beach-bum myself, it strikes me that the sand-soaked shore of the Mediterranean is not an ideal locale for a community of electronic devices.

Lest we forget, the Kindle may be the future of civilization as we know it, but Amazon has a pretty nifty business in distributing those hardcopy books we dinosaurs so love. In fact, it has the biggest business. And thanks to the Marketplace Fairness Act, it is going to get even bigger. And there is does not appear much good about that.

Currently, companies like Amazon that ship goods to your door have an advantage over regular retailers in that , when they sell into a state where they do not have a warehouse or other permanent presence, they avoid local sales tax. This has led Amazon to choose where to warehouse its goods and provide a less-than-immediate delivery service in many States. The upshot has been that traditional distributors have been able to exploit a market advantage in such States by either offering the standard walk-in shop service or same day delivery for mail orders through any one of their multiple outlets in the State. Now that it looks like Amazon and its ilk are likely to be required to charge Sales Tax irrespective of presence, they are evidently planning a massive expansion of  their warehouse facilities across the country to enable same day delivery. The end result will be that margins will be squeezed and many of the remaining book retailers will be run out of business or acquired. To me, this would be one of the biggest tragedies in the field of literature since the birth of Jeffrey Archer.

When I look back on how I acquired the modest level of knowledge I have,  school does not feature very prominently (although it was brilliant fun). I would spend literally days as a child, youth and not-so-youth hanging around my local library (where I was a one-time junior librarian) and major bookshops, picking books off the shelves and flicking (carefully) through them. As late as 2 weeks ago, I strolled aimlessly into a local bookshop and left with two great volumes that I had only vaguely heard of (I did remember to pay at the counter). While google and the rest largely compensates in the modern world for that random-walk of knowledge acquisition, the consumerization of the book market by Amazon and its friends has clearly negative connotations.

In our neighbourhood it is not always the distributors who are to blame for lack of available titles. Ask Salman Rushdie

In our neighbourhood it is not always the distributors who are to blame for lack of available titles. Ask Salman Rushdie

That is not to say that Amazon has not brought clear advantages too. Returning from Woody Allen’s delightful “Midnight in Paris” some time ago, I was able to lie in bed that very night reading Hemingway’s “A Moveable Feast” (on which the movie draws heavily) on my Kindle. Living, as I do, in the Middle East where supply of English language books is patchy to say the least , I would probably have had to wait months for a copy  if not for Amazon.

The House of Representatives would do well to tread carefully with this reform. At the same time the European Commission is currently dealing with a, not unconnected, VAT outrage perpetrated by the French government (who else?) and Luxembourg authorities (who are they?) offering cut-price VAT for e-sales within the European Union, benefiting most markedly none other than…. Amazon.

I did it their way

What a glass is for

What a glass is for

Less than a month after my rare downing of a beer in an English pub, I was at it again – this time in New York. Served an ice-cold bottle of lager, I looked around furtively for the glass. Then I remembered:  John Wayne didn’t do glasses.  Swigging from the bottle – a practice I have rarely resorted to since being weaned off formula milk in the winter of 1959 –  I leaned back in my seat and drank in  the glorious jazz performance at the world-famous Blue Note Club in Greenwich Village.

This was no ordinary night. 75 years to the day after Benny Goodman played Carnegie Hall and, with that groundbreaking event, brought jazz into the American mainstream,  we were treated to a selection of the music played that evening. The glassless beer and the gently syncopated version of my personal favourite  of the night – Gershwin’s “The Man I Love” –  brought home to me what I love about America.

It is the syncopation.  America is always offbeat, playing to an unexpected rhythm.  The American way is rarely anybody else’s way (unless that anybody is copying American culture).  Americans are unencumbered by European or Japanese mores. They derive conclusions from first principles. For better or for worse.

Don't worry. It runs on battery

Don’t worry. It runs on battery

Only in America could a college dropout, along with others of his ilk, conduct an Information Technology Revolution from his garage.  But what was truly amazing was that Steve Jobs managed it using medieval 110 volt electrical circuits. As recently as last week, I held my breath as I inserted the adapted two-pin plug of my laptop into the miniscule wall socket of my Manhattan hotel room, fully expecting the whole caboodle to blow up in my face. In the event, all passed peacefully although, when I later tried to remove the plug, the entire socket launched  out of the wall .

Then, in the country that leads the world in financial innovation, there are those one-size-fits–all dollar bills. Convinced that, if a thief could not estimate how much cash his potential prey was holding, he would not make a grab for it, the Americans decided – in contrast to just about every other country in the world – not to distinguish between the sizes of the various denominations of their banknotes. While there is no apparent evidence that America is less into aggravated theft than the rest of the world (this sarcasm is going to kill me one day), this lunacy drove me out of my mind the night following the jazz concert.  Desperate to make an exit  from a Comedy Club where I had been exposed to the cream of New York Stand-up (the sarcasm just killed me), including a famous comedian’s daughter (unfortunately for her, and us, she inherited his looks rather than his sense of humour), I fumbled in the dark for at least ten minutes looking for the right cash to pay for my colleague’s and my FOUR bottles of beer (no glasses) that had been, in addition to the tickets,  a condition of entry.  Mind you, I have to be thankful that it at least took my mind off the show.

However, for me the daddy of them all is the insidious Sales Tax. Upward of 140 countries in the world have adopted a form of Value Added Tax, a highly efficient indirect tax that is charged and refunded throughout the supply chain until finally being imposed on the poor consumer.  Not in America. Over the years, I have listened to CPA’s, businessmen, politicians and other otherwise intelligent Americans, literally rant against a VAT.  In a country that considers Socialism a word only fit for New York Comedy Clubs (where alcohol filled audiences inexplicably guffaw with laughter each time an expletive is uttered), they scream that, as a regressive tax,  it would discriminate against the weaker elements of society who tend to consume a higher proportion of their income. Yeh, right. Their real reason is that it would make it easier  for Washington to raise more taxes.

In the meantime, the majority of the States and their subdivisions charge Sales Tax, which is normally only charged at the point of supply to the consumer. At each stage of the supply chain recipients of goods have to produce a government exemption certificate to avoid being charged the  tax. There are a myriad of exemptions and, to make things more complicated, in the case of supplies made interstate, a seller without a nexus in the recipient State does not need to account for the tax at all. There is enormous risk of Sales Tax fraud (VAT frauds tend to be restricted to international transactions) as well as “cascading” – the possibility that sales tax will be charged twice (as, say, the sale and resale of a second hand car – though, I suppose, there the risk is not greater than it being paid once).

But none of that is what bothers me about Sales Tax. What bothers me about Sales Tax is that, in New York at least, they NEVER tell you what the full price of anything is. I get caught off balance on every single trip. I see something advertised  for fifty bucks. I use  my  mental calculator to compare it to the price back home and then when I get to the point of no return at the till, they slap tax on top. Then I see shirts advertised 3 for $99. By now I am wise to these Americans’ tricks and I  work out  the tax in my head concluding  it is still worthwhile. Arriving at the till, I am charged $99. Like a moron, as I  fumble with the dollar bills stuffed  in my wallet trying to piece together the required amount, I  ask why  the price is  not higher. There is no sales tax on individual items of clothing under $110, dummy.

He made a mistake calculating the tip

He made a mistake calculating the tip

I have a theory that the reason for Sales Tax not being included in the price of things is because, when people go out to restaurants, they can avoid complicated calculations of how much tip to leave by giving “twice the tax”.  My proof is that when they go into supermarkets, because they do not need to tip, there is no Sales Tax on the same uncooked food sold there. Simple, really.

I was in New York last week for 4 days. I stayed in the same hotel room throughout (despite fears that electricity was going to jump out and kill me in my bed).  I did not use the mini-bar or room service. My only “luxury” was 4 days of access to the internet so that, following the demise of my already geriatric Blackberry on Day 1 of my trip, I could stay in contact with my office. The bill ran to an incredible two pages. While every day was charged separately, as is the custom in many places, it was the  4 types of tax charged on each item that did it.  The good news was that they only charged me for 2 days of internet use (despite my very honest protestations). It seems that it is all a matter of priorities. It doesn’t matter if  they  screw up the billing– just as long as the sales tax is right. God bless America.

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