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Tax Free Diamond Engagement Rings Makes Sense (cents)!


barry
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Two weeks ago we noted "Tax and Spend" Charlie Rangels' oration at the New York Summer Jewelers Association Show held at New York's Javits Center advocating to the assembled Brick and Mortar Jewelers the taxing of Internet Diamond Websites so as to "level the playing field" and help the B&M jewelers compete against Internet Diamond and Engagement Rings websites.

 

 

Charlie (Democrat, New York) is Chairman of the House Ways and Means Committee and in the spirit of Politicians everywhere has never met a Tax he didn't like. He'll find a "Ways" and "Means" to implement it into Law.

 

 

The fact is that cutting taxes, not raising them, is the "Ways and Means" to spur sales and economic growth. In every instance where taxes have been reduced, sales and economic growth have dramatically increased as have collection of tax revenues with the concomitant growth of a solid middle-class that is the foundation of political and economic stability.

 

 

The most recent example of this tax-cutting benefit for Merchants and Consumers alike is this morning's report by the Boston Herald http://business.bostonherald.com/businessN...ticleid=1016727

 

 

 

Cutting taxes, not raising them is the "Ways and Means" to go. Are you listening Charlie? Brick and Mortar Jewelers?

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Two weeks ago we noted "Tax and Spend" Charlie Rangels' oration at the New York Summer Jewelers Association Show held at New York's Javits Center advocating to the assembled Brick and Mortar Jewelers the taxing of Internet Diamond Websites so as to "level the playing field" and help the B&M jewelers compete against Internet Diamond and Engagement Rings websites.

 

 

Charlie (Democrat, New York) is Chairman of the House Ways and Means Committee and in the spirit of Politicians everywhere has never met a Tax he didn't like. He'll find a "Ways" and "Means" to implement it into Law.

 

 

The fact is that cutting taxes, not raising them, is the "Ways and Means" to spur sales and economic growth. In every instance where taxes have been reduced, sales and economic growth have dramatically increased as have collection of tax revenues with the concomitant growth of a solid middle-class that is the foundation of political and economic stability.

 

 

The most recent example of this tax-cutting benefit for Merchants and Consumers alike is this morning's report by the Boston Herald http://business.bostonherald.com/businessN...ticleid=1016727

 

 

 

Cutting taxes, not raising them is the "Ways and Means" to go. Are you listening Charlie? Brick and Mortar Jewelers?

 

 

Hey Barry, I have a question for you. Let's say the average person in America now pays 25% in income tax. If there was no more income tax and just a 15% flat consumption tax on all goods would that hurt or stimulate the economy in your opinion? I know this is not directly related to diamonds but I'm just curious what you think :) I sell mostly on the internet myself, but I honestly would prefer a more fair taxation based on consumption. Hopefully Ron Paul or Mike Huckabee get the republican presidential nomination but I won't hold my breath :)

Edited by Adylon
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I’m certainly no fan of the ‘if it moves tax it’ approach that the government tends to take but when the issue is about taxing Internet sellers, it's usually about sales tax. Every state that has a sales tax has a matching and identical use tax. This tax is supposedly paid to your home state for all purchases that would otherwise be charged sales tax (like jewelry) when they are bought from a merchant who has no authority or requirement to collect the taxes (like an out of state Internet seller). Buying over the Internet from an out of state merchant does NOT make the sale non-taxable. It only means that the customer is expected to file and remit the taxes themselves instead of having the merchant do it. Check your own state revenue department website if you don’t believe me. They all have prominent FAQ sections that discuss this very topic as well as providing links to the forms that their residents are expected to submit.

 

I say ‘supposedly’ in the above paragraph because few customers do this until they find themselves audited for some other reason and the taxman brings it up backed by something like your credit card or bank statements. Then they’re subjected to interest and penalties as well as the taxes. In the extreme it can even lead to criminal prosecution for filing a fictitious tax return. Again, this situation applies to every state that has sales taxes.

 

The fact that the tax collectors are lax in enforcing sales/use taxes is unequal enforcement of the law and gives an unfair competitive advantage to the out of state dealers. A significant majority of the Internet dealers flaunt the idea that since they the dealers aren't obligated (or even permitted) to collect the taxes that the consumer is therefore not obligated to pay them. This is simply not correct. There are plenty of good reasons to buy online but this isn’t one of them. It's certainly not their job to require their customers to pay their taxes but it's ridiculous that the states allow a situation to continue where this mis perception can be used as a selling advantage.

 

Fixing the problem is difficult but the way I see it there are only two fair choices. Stop charging sales taxes through the local merchants or start charging tax on the out of state sales. It’s a bit complicated because of cross-jurisdictional issues between the states but this issue is a logistical problem in how to collect and remit the taxes, not one of whether the taxes are owed. Frankly I think it’s far too late, they should have done this years ago. They should charge taxes if they must and when they do they should do it fairly to everyone involved. I also have no problem with taxing bling and if they are going to cut taxes, which I think they should, this isn't one I would recommend starting with. No one likes to be taxed but they have to tax something this seems more socially reasonable than taxing, say, food or medicine.

 

Sales/use taxes on Internet sales are already in place. This is not a new tax. What's missing is sensible and equitable enforcement.

 

Neil

Edited by denverappraiser
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My point is that you don't solve a problem or acquiesce to the whine of B&M jewelers to "level the playing field" by imposing confiscatory taxes. This has the opposite effect, none of it good.

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What confiscatory tax?

 

I suppose there are some jewelers out there who would like to see some sort of ‘Internet windfall profits tax’ or some similar nonsense imposed on Internet and mail order sellers but I see no serious suggestions that such a thing will every become law. Lawmakers can be dumb, but they’re not that dumb. Do you agree that equal enforcement of the sales/use tax laws is in order and that the existing approach is unfair to the local merchants?

 

Neil

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I agree. It is unfair.

 

But B&M jewelers will benefit, not by lobbying for the imposition of taxes on Internet vendors but for a reduction in their taxes.

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I think we agree on the whole issue. A punitive tax on long distance merchants is a foolish way to run a country and most B&M jewelers are smart enough to know better, even if a few find it makes for good speeches at conventions. Most are just frustrated at the current situation and are lashing out to fix it because it’s been going on for so long and so little apparent progress is being made.

 

As I understand it, the problem is one of jurisdiction. Each merchant has a relationship with their own state revenue department and the taxman is authorizing (read requiring) the dealer to collect and remit taxes. No merchant does this for fun, it’s the power of law that forces them to do it. Some merchants, like Walmart, have a relationship with every state and they have an army of accountants to work these things out but there are others who set up shop in a single location. Sales tax, when applicable, is imposed by the state of the buyer, not of the seller. It’s easy enough when they are the same but it’s a problem when they’re different. To make matters worse, my home involves sales taxes from the state, the county, the city, the transportation district and the cultural facilities district. These all have different boundaries and they change both the boundaries and the tax rates at an alarming frequency. My office address a few miles away has a completely different rate. This is pretty typical. An out of state merchant would be hard pressed to know the correct tax rate to charge even if they wanted to collect it. Then there’s the real jurisdictional problem and it turns into a constitutional state’s rights problem. RTD (my transportation district here in Denver) has the authority to charge me taxes on things but the state of New York does not. If I were to buy something from Barry (he’s in NYC), and he manages somehow to figure out how much tax I owe, to whom should he remit the taxes? Whose laws has he violated if he doesn’t do the paperwork properly? RTD can and does use the Colorado Department of Revenue to collect taxes on their behalf and CDR requires local merchants to collect it for them but they can’t give this authority to some other state. It’s just not legal. The solution is going to involve some sort of collaboration between the various states and the federal government. The fed does have the authority to tax me, they do have the authority to demand that Barry collects it and presumably they have the wherewithal to figure out what the appropriate rate is for every address in the country on any particular day. They are the ONLY ones who have both the ability and the constitutional authority to address this but that lands it into a solidly political problem. Enter the lobbyists.

 

Sales taxes are the primary revenue source for most cities, counties and many of the states. They often don’t get a share of the income taxes at all. They fear, probably correctly, that if the IRS gets involved in their tax collection that soon the money will start to get diverted to Washington first and then awarded back as some sort of grant, minus a handling fee, as long as they toe the line on the way the Washington folks want things run. Sort of like the way highway funds are handled now. All of a sudden your local fire department, schools and water department will be controlled out of Washington instead of your own community. Some people may want this but any way you look at it it’s a pretty complicated mess and there’s a whole lot of money at stake. This is MUCH bigger than Internet diamonds and it involves tens or even hundreds of billions of dollars in uncollected taxes.

 

Neil

Edited by denverappraiser
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I think that Billions is an underestimate.. A few major players are now collecting sales tax online, Dell is a great example of this.. They got tired of having their shipping documents "requested" by various states in an effort to collect use tax.. From a technical perspective the collection isn't terribly difficult, but writing the 50 checks a month may be..

 

The issue is complicated by the fact that so many people are proposing a flat sales tax vs a federal income tax.. If you go to a federal sales tax, and then allow catalog sales and internet sales to avoid collection, you make this even worse.. The hard solution is to make every vendor collect and send state sales taxes to every state.. That means 49 extra checks each month.. A pain, but not unbearable.. Having all the money sent to a central point for redistribution is a bad idea because it adds too much beuracracy to the problem..

 

I live in both worlds.. Our store is less than 5 minutes from the state line.. If I have a customer 10 minutes away come in and buy a $10k diamond they pay an extra $600.. If they sit at home, order it from my website, have it shipped via FedEx all the way to Memphis and back again, all overnight, they "save" $600 and just assume that they won't be audited..

 

As much of a burden as this seems to put on internet and catalog vendors it is the "fair" way to approach this because we all know that the sales tax will never be dropped.. I think that it will have the added benefit of forcing some of the pajama retailers / drop shippers out of business in favor of genuine businesses..

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A federal sales tax in lieu of federal income tax and the other various wage withholding taxes and local sales taxes has it’s own problems. Aside from the control problems of centralized authority mentioned above, 15% is nothing like a sufficient rate. FICA alone is more than that for most people and current sales taxes are on the order of 6-8% in most cities. A federal sales tax that raises as much money as the government seems to be able to spend would need to be more like 50% or more, not 15%. This, in turn, would drive almost everything into the black market or overseas.

 

Remember what happened back in the 80’s with the‘luxury tax’ on boats and airplanes when congress decided that it was an easy target to tax the rich and only the rich buy yachts and private jets? The rich still got their gold plated boats, they just bought them overseas and sailed home in a ‘used’ boat. Who really suffered were the people in Florida who make yachts and all of the support industries related to it. The industry still hasn’t recovered and the program produced less revenue for the taxpayers than they spent administering it. It was abandoned in the early 90's. It was a good employment program for IRS workers, good for Bahamian yacht dealers and good for accountants who had to explain it to their clients but it was a disaster for both the taxpayers and the US boatbuilding industry. This was not our finest hour in tax policy and that was over a mere 10%. Think what would happen with an extra 50% on top of EVERYTHING.

 

Neil.

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I think the fairtax people are advocating a federal tax on all NEW purchases of 23% ---- and of course you would not pay any income tax, this does several things:

 

1. It levels the playing field for those who do and do not pay taxes.... all the illegals, those who get paid "in cash", the pimps, etc... :) you think these guys pay taxes now? Don't forget, ALL income is supposed to be taxed, but a lot of it is not. Even the guy catching a baseball from Barry Bond's has to fork over 50% of the "appraised value" now to the IRS, and income can also be in the cashing in certain types of annuities, pensions, inheritance, etc. All that headache would be gone. All things considered, the 23% is actually quite low and with the 16th ammendment repealed, no one would be able to bring back the income tax.

 

2. It incentives people to work hard, and save more, rather then spend more and work less, which in this day and age is something we desperately need.

 

3. The tax would only be on "NEW" purchases, not used, so you can only tax something once. A new house would cost 23% more, a used one would not. I wonder how that would work for "used" diamonds?

 

4. It would level the playing field with cheap imports from other countries, they do not have income taxes like we do, or have all the other administrative costs and taxes that go into products and that is one reason why their goods are so much cheaper. If you taxed consumption rather then income you'd make imports more expensive and domestic goods cheaper, and not only that you wouldn't need to impose VAT or duties/taxes on imports in various amounts for each country and start trade wars.

 

5. Hundreds of millions in beurocracy alone would be saved, tax preparation for people alone is a $50B a year industry, not to mention the cost to run the IRS. Think of all the savings we would have by eliminating a lot of this waste.

 

6. The poorest people out there would also qualify to get refunds on consumption for basic living expenses.

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Yosef,

 

That would certainly encourage recycling.

 

Your distinction of new vs. used merchandise purchases is an interesting one. If you buy a new yacht from a dealer in Bahamas and sail it home, it’s now a used yacht when you arrive back at the dock, right? Presumably the same would apply to purchases from a car dealerships in Vancouver or at a shopping mall in Tijuana. If your car dealer drives it around for a while before selling it to you, does that make it ‘used’? I presume this plan would mean that services are not taxable at all, including the services required to repair and restore a used item into serviceable condition. Only the new parts and supplies required would be taxed. How much of your purchase from Starbucks would be taxable? We all know that the cost of the coffee is nominal and that what’s really being bought is a share of the environment, the barista’s time, the rent and the general dining experience. “Here’s you’re coffee sir. That’ll be $0.30 for the beans and water and $5.00 for the delivery fee. Plus tax.â€

 

Again I point out that the tax proposed is nowhere near enough to fund the government as it exists today.

 

Neil

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Good discussion. Currently the burden is on the consumer to report and pay tax on these purchases (some do, but not the majority). For the reasons Neil outlined a flat internet-traffic tax seems the only practical solution and I believe its day is coming. One thing working in internet vendors' favor is that the economy has been stimulated by the growth of the dotcoms. The lawmakers are aware of that.

 

...As much of a burden as this seems to put on internet and catalog vendors it is the "fair" way to approach this because we all know that the sales tax will never be dropped.. I think that it will have the added benefit of forcing some of the pajama retailers / drop shippers out of business in favor of genuine businesses..

 

I think so too Feydakin.

Edited by JohnQuixote
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You're right, but the government that exists today is a bloated behemoth. Reduce government; reduce the tax burden.

 

I couldn't agree more but that's way beyond the scope of whether Internet shoppers should make the same contribution to the gov't coffers as b&m shoppers. I think we all agree that they should, it's purely a matter of how to get to that end. This holds true even if taxes and the government services that come with them are cut. They should be cut as fairly as possible to all involved and zero is not a realistic target, especially if it only applies to certain shoppers while others are expected to carry the whole burden.

 

Vote Libertarian.

 

Neil

Edited by denverappraiser
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I believe this idea of taxing Internet Vendors will stay dormant for now in the House but pick up steam after the next election.

 

Interesting to speculate on a Rudy vs. Hillary campaign. Two diametrically opposite positions on taxes.

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