A Few Thoughts on the New Seattle Soda Tax

Soda Tax Seattle Drink Council City

Seattle Soda Tax

On Monday, June 5, 2017, the Seattle City Council passed a motion which will implement a tax on sugary soft drinks (soda). This new “soda tax” is designed to reduce statewide obesity rates, particularly among children, and to raise additional funds for public projects. Expectedly, the passage of the soda tax has been met with both surprise and opposition as it raises issues regarding personal freedom and the role of government in the marketplace. Let’s look at the basic provisions and purposes of the tax and then discuss some of the arguments both in favor and against it.

Basic Facts

The soda tax was passed by a margin of 7-1; Lisa Herbold was the sole councilmember to vote against the tax. The city will collect 1.75 cents for every ounce of “sugary” soda, such as regular Coca-Cola, Pepsi and so forth. The tax will not be collected on diet sodas and sodas made by smaller distributors.

The tax is set to take effect on January 1, 2018. This date could be pushed forward, however, in the event that a legal challenge or other type of motion takes place in the interim. Prior to the vote on the tax, councilmember Herbold proposed several amendments which she claimed would mitigate some of the potential negative consequences of the tax. All of Herbold’s amendments failed except for her proposal that some of the tax proceeds be used to fund local food banks.

Pros and Cons

The chief architect of the tax, councilmember Tim Burgess, argued that the tax will make a positive impact on state obesity levels. Though the tax may (indirectly) encourage healthier eating habits, many opponents could argue that this tax represents an undesirable incursion by the state on the free market. Regardless of the price, people have a choice to purchase sugary soft drinks, and the tax on soda could easily be interpreted as a financial penalty on personal freedom. The soda tax, therefore, brings up the recurring issue of what role the government should play in preventing certain behaviors in the interest of the wider public good.

When viewed in this fashion, the soda tax acquires a rather lengthy pedigree. Sin taxes, such as those imposed on tobacco and liquor, have been relatively common throughout American history. In the 1920s (and early 1930s), we used Prohibition to guard against the supposedly toxic influence of alcoholic beverages; today, historians almost all concur that Prohibition was a failed experiment, but the issue of what level of responsibility the state has for promoting public health remains hotly contested. Here at HTC, we think it prudent to avoid a definitive stance on the issue; after all, we are not dealing with a ban or severe financial burden, only a small incentive to avoid sugary drinks. HTC is certainly very curious about the impact of the tax and we look forward to seeing hard numbers on whether the tax lives up to its expectations.

Source

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Alaska’s Current Tax Debate

Alaska Tax Debate

State of Alaska

The decline in oil tax revenue has sparked an important debate among Alaskan policymakers. Historically, Alaska’s oil supply has resulted in surpluses for its state government; now, with oil production on the decrease, state legislators are seeking measures in order to confront the newly created deficit. At this point, the debate has narrowed down to whether Alaska should adopt a state personal income tax or a sales tax. Alaska has been without a state personal income tax for 35 years and it has never collected sales taxes in its entire history.

The Institute for Taxation and Economic Policy (ITEP) released a report back in mid-July which addressed the issue of Alaska’s revenue woes. The report – which was entitled “Income Tax Offers Alaska a Brighter Fiscal Future” – makes the case that implementing personal income taxes for Alaskan residents is the better option. Essentially, the report propounds that adopting a personal income tax is more equitable, more sustainable in the long-term and also more financially beneficial to the bulk of Alaskans.

Though the debate is alive and well, several actions have already been taken. Governor Bill Walker has already made cuts to state spending and substantially curtailed tax breaks available to the oil industry. What’s more, Walker also reduced the maximum amount Alaskans may receive through the Permanent Fund; each person may now receive a maximum of $1,000 rather than the previous maximum of $2,072. The Permanent Fund is a statewide fund established to help ensure that a greater share of the Alaskan population benefits from the state’s oil stock.

Bringing balance to Alaska’s fiscal quandary will be no easy matter. Whatever option is selected, there will be a sizeable bite taken out of Alaskan pocketbooks. The hope is that the settling of Alaska’s revenue problems won’t disproportionately affect lower to middle level income families. So far, with all available evidence taken into consideration, it appears that reinstituting a personal income tax in conjunction with a few other measures is the surest means to provide both an equitable and sustainable financial future. Only time will tell if this is indeed the means which will be adopted.

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The Amazon Sales Tax Dispute

Amazon Logo Tax Dispute

Amazon Tax Dispute

With its seemingly endless number of products, competitive prices and customer focused shipping practices, Amazon.com (Amazon) is truly a commercial force to be reckoned with. Headquartered in Seattle, Washington, Amazon.com is the largest internet-based retailer in the world and, as of 2015, has surpassed Walmart as the most valuable retailer in the United States. Amazon began as an online bookstore but has since broadened its range of products and now offers a wide assortment of goods and services.

For a number of years Amazon has been at the center of a controversy regarding the collection of sales tax from customers. Amazon sells and ships products to customers in every state throughout country but does not collect sales tax in every state. Since it is an ecommerce company, Amazon does not always have a substantial physical presence in the states in which it conducts business and so many state governments lack the capacity to compel Amazon to collect sales tax. Many state governments are attempting to pass legislation which would compel Amazon to collect the tax, but this may cause Amazon to simply cease conducting business in whichever state passes such legislation.

In May of 2011 legislation was introduced in Congress which, if passed, would settle the issue entirely. So far, Amazon has not taken a public stance on the bill.

State Argument

State governments argue that Amazon possesses an anti-competitive advantage in the marketplace over traditional storefront businesses. And since storefront businesses are of course forced to collect sales tax Amazon should likewise be compelled to do the same. In other words, the sheer impact which Amazon has on state economies is reason enough to collect the tax even though Amazon doesn’t always maintain a strong physical presence in the states in which it conducts business.

State governments also have clear financial motivations to impose the tax as well, as sales taxes from Amazon transactions can add up to hundreds of millions of dollars per year in certain states.

Amazon Argument

In order for a business to be required to collect sales tax it must have a physical nexus in the state in question. Amazon contends that this physical nexus is either insufficient or nonexistent in many cases.

In order to sidestep the physical requirements, Amazon has created subsidiaries which are treated separately for tax purposes. Amazon also carefully monitors its relationships with affiliate businesses in order to make sure that its physical presence is kept to a minimum.

Final Thoughts

Both sides of the argument have a degree of merit. Amazon does make it difficult for many local retailers given its status as an internet-based company. But even if a given state passes legislation to compel Amazon to collect sales tax, Amazon may simply remove its activities from that state; this very thing has actually happened before on a number of occasions. Obviously, state governments would love the dramatic rise in revenue which would occur with the collection of sales taxes from Amazon transactions; and Amazon would love to avoid collecting sales taxes since doing so gives it a competitive advantage. Perhaps the matter will only be fully resolved at the federal level.

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Pros and Cons of Internet Sales Tax

Internet sales tax hit online entrepreneurs hard. This is not a Federal tax it’s a state tax. Every company must collect sales tax in any state it has a significant business presence in. At the end of January, they have to file their sales tax and dispense the money they collected for the state.The new penny

There are some advantages to Internet sales tax and some disadvantages. We are going to discuss them.

Funds for the State

It prevents cuts to public services because the state government has a new form of income.

Prices Don’t Always Go Up

Contrary to popular belief, prices don’t necessarily go up. Many businesses simply leave their prices stagnant and take the money out of their profits. This can be interpreted as both a good thing and a bad thing.

Hindering Free Market Forces

It can be argued that companies that can absorb a sales tax price hike have an unfair advantage over those small businesses that can’t. This is hindering free market forces and is against the American state of mind.

More Tax Hassle

It’s just yet more paperwork that businesses have to worry about. Instead of focusing on customers, they have to continue to partition their money in order to address yet another tax.

Internet Sales Tax in Brief

Every state sets their rate of sales tax. Whether you agree with it or not, this is something that’s here to stay. Make sure you pick up a permit before you begin collecting sales tax. It’s necessary to do this or you’re technically committing fraud.

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Online Entrepreneurs Need to Get Sales Tax Compliant Before 2016 Arrives

The sales tax deadline is in January, so say goodbye to that relaxing start to 2016 you were dreaming of. Every online entrepreneur needs to get sales tax compliant before the deadline hits or they could face huge fines, which are more than capable of bringing down a small business.EntrepreneurPic

The Right State of Mind

Bear in mind that this sales tax has nothing to do with the Federal government or the IRS. It’s levied by individual states. You have a duty to collect sales tax in jurisdictions where you have a Nexus, or a significant business presence.

Calculate the Nexus

If you have:

  • An address.
  • A postal location.
  • A dropship relationship.
  • 3rd party affiliates
  • Temporary business presence

Then any of this means you have a Nexus in that state. In other words, you have to collect and declare any sales tax based on the states you have a Nexus in.

Get a Permit

You must have a permit to collect sales tax. This is to prevent fraud where businesses claiming sales tax are actually placing the tax into their pockets without passing it on. You must register for a sales tax permit in order to legally collect any sales tax.

Create a System

Finally, you have to create a system to collect sales tax. This is not for your sake. It’s designed to show to any inspectors and auditors that you’re doing things by the book. It has to be watertight and everything has to go down on paper.

Are you sales tax compliant yet?

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Huddleston Tax CPAs of Seattle & Bellevue
Certified Public Accountants Focused on Small Business

(800) 376-1785
40 Lake Bellevue Suite 100, Bellevue, WA 98005

Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching, Quickbooks consulting, bookkeeping, payroll and business valuation services for small business. We serve Seattle, Bellevue, Redmond, Tacoma, Everett, Kent, Kirkland, Bothell, Lynnwood, Mill Creek, Shoreline, Kenmore, Lake Forest Park, Mountlake Terrace, Renton, Tukwila, Federal Way, Burien, Seatac, Mercer Island, West Seattle, Auburn, Snohomish and Mukilteo. We have a few meeting locations. Call to meet John Huddleston, J.D., LL.M., CPA, Tawni Berg, CPA, Jennifer Zhou, CPA, Jessica Chisholm, CPA or Chuck McClure, CPA. Member WSCPA.