The Cost of Government Intervention
Often people who don’t run businesses simply fail to understand what is involved. They often think that we’re somehow ruthless profit seekers, hell bent on charging them more money when we say things like, “government intervention increases costs.” They think that government restrains us from charging them exorbitant prices. It’s actually the opposite. Government restraints add to the cost.
I happen to have come across the perfect example that—I hope—is pretty bullet-proof to any naysayers. For the past few months, I’ve been trying to run a side project—MVNICIPAL—and I haven’t had the time to get it off the ground.
Well, actually that’s inaccurate. I’ve got nearly everything set up except for this hurdle I have. And that hurdle is called sales tax. In some states it’s not very complicated to collect. But I happen to live in Florida. While Florida is actually pretty good with many laws, it is unbelievably poor with respect to sales tax. Allow me to explain.
Unlike states that charge sales tax by the county the seller is located in, Florida requires that you charge sales tax for the county in which the buyer is located. As you might imagine, one scenario is simple. It requires knowledge of one tax rate. The other scenario is massively complex. It requires knowledge of all of the tax rates in Florida. And it also requires you to stay updated on them, because they can change each year.
For one thing, not everyone hand codes their own shopping cart to accept Florida counties. If you use things like Paypal to do your processing (as I was planning on with Big Cartel) you can only enter zip codes. Even if you had the time to enter all of the zip codes you’d still be incorrect because some zipcodes span counties. And for those of you who are curious, the city I live in has sixty different zip codes alone—and there are gaps in the range so entering them in that way doesn’t work either. If what I found through my hours and hours of research is correct, there are somewhere around 1,500 zip codes for Florida.
This tax code is a burden that has kept me from actually selling anything so far. Big retailers can set up a system to deal with it. Small companies, like mine, can’t. Now, it wouldn’t be bad if there were any leniency built into the system. But there isn’t any. Any late filing or any problems all come with insane fines (upwards of $50/day). The crazy thing is that the problem isn’t even really what to charge. The problem is, they need to know where to send that money once it gets to the state so they require us to tell them where to send it. And that’s where it all falls apart.
So here are the options—none of which are particularly appealing. Some are incorrect, and one is what I wish I could do.
1. Charge whatever the highest rate is.
This has the advantage of being fair to all. On out of state sales, I make a slight profit which is blown out the window by the complexity of my state’s sales tax code. For intrastate sales, I have to somehow figure out what county the buyer is in. There are lookups on the Florida Department of Revenue site, but that requires me to manually input, check, and log each address.
2. Enter every zip into Paypal or whatever processor.
This is still wrong for the reasons explained above. I can charge differently, but that’s not exactly fair to all buyers either.
3. Charge based on my own zip code.
This is the option many people decide. Unfortunately, I can’t do it because it’s illegal and I’m trying to be legit here. If audited, you could be screwed. And how would you possibly report what counties your sales went to other than just straight up lying?
4. Ignore it and just pay the tax yourself.
You can build the tax into the price, from what I understand, but you technically can’t charge the price, and then pay the money yourself. Why? Who knows. And this still has all of the burdens of #3.
5. Ignore it altogether.
This is what many eBayers and low-volume sellers probably do. And when that happens, the state loses the money it’s putting me through hoops to get. And because the system is so broken, I really want to go this route. But I don’t want to break the law because there are consequences, and they are hefty. And I’m pretty sure they’d include jail time.
So what do you do? I suppose I could go find a different system that caters itself to my stupid state’s tax code. But why should I have to do that? That’s additional cost to me, and ultimately cost to you. And neither of us want that. And it’s certainly not going into my pocket like people want to think.
And why does my state require this asinine way of reporting sales tax? I’m operating in my city. I generate all of my income within this city. And yet, I’m supposed to have the state pay someone else’s county for goods made here? Wouldn’t it be easier to just charge a flat rate?
Then there’s the asshole brick and mortar retailers that are equally clueless or deviously cunning who argue that online businesses have an advantage because they don’t have to charge sales tax. They deal with one sales tax per store and we have an advantage? Hahahaha! Are you kidding me?
Technically, even if you’re not located in Florida and you ship to a person in Florida, you’re supposed to charge the surtax—the amount the county charges in addition to the state’s tax rate—if their county requires a surtax. That means if you give a shit about doing that (or you need to be completely legit across state lines like Amazon) you have to figure out how to tax for rates outside of your actual location. Oh and let’s not forget, if you ship to Florida and you don’t offer local pickup, you must also charge tax for the shipping!
So when we talk about burdens placed on business and how that leads to increased costs, this is exactly the kind of thing we’re talking about. And this is just one simple example. Look at that photo above. Those are the surtaxes by county for all 67 Florida counties. And that envelope stuffed with all of that crap is about half of what the state has sent me in about 6 months pertaining to collecting sales taxes. I’ve even had to file two sales tax forms so far under threat of fines even though I haven’t recorded a sale yet this year because I’ve been trying to figure out this issue. If it isn’t clear by now, this issue is holding me back and increasing my costs.
I should also mention that it’s not just me. I searched a bunch of forums and found that this question—how do I charge sales tax in Florida without jumping through ridiculous hoops—has come up consistently and has gone unanswered consistently. And many people post the advice of their CPAs, which usually isn’t even correct from a cursory reading of the stuff the Department of Revenue has sent me. Many of them suggest method #3!
All of these problems are a result of just one tax in one state. There are thousands of little taxes in the 50 states. So I must ask the question. When a business owner spends hours upon hours of his time trying to comply with an insanely complex tax code, who do you think ends up paying for that? Hint, it’s usually not the business owner. We need to make a salary to survive too, and we can’t do that by lowering our salary to accommodate the government’s hidden fees.
Look at your utility bills if you don’t believe me. If you don’t think government regulation makes things more expensive the proof is right in front of your face.
