Taxation without Representation

So there’s lots going on right now to blog about: in finance there’s the continuing debt saga of Greece and the potential failure of the euro, all the way up to the news today that the US, for the first time in 50 years, might lose it’s status as a favorable creditor if it misses the deadline to increase it’s debt ceiling. In business, you have RIM (the makers of Blackberry) laying off employees, Amazon and Borders dropping the link to buy from their stores directly from IPad (Apple wants 30%), and in investing I’m still seeing articles on a potential repeat of the dot.com fallout hitting investing in social media startups.

But I’ve blogged about all that before, so when I saw an article in the Wall Street Journal (on a plane, of course) on Amazon’s fight against paying taxes I told Geshe Michael “That’s it.”

The article (in the Tuesday, July 26 issue), in a column by Stu Woo called “Ahead of the Tape,” was called “When the Levy Breaks at Amazon.” It’s about how Amazon has fought against (in court and by relocating its warehousing) paying taxes as an online seller:

The common thinking is that Amazon’s tax-free sales gives it as much as a 10% pricing advantage in high sales-tax states such as California and Illinois. Credit Suisse estimates the company would lose 2.7% of its North American sales, which were $18 billion in 2010, if Congress passed far-reaching federal online sales-tax-collection legislation.

The company has retaliated against the 10 or so states that passed “Amazon laws” that try to force online retailers to collect sales taxes. It sued New York. It said it would close a Texas warehouse. Just this month it started the process of getting a measure on the California ballot to repeal that state’s law.

But the author takes an enlightened view:

But collecting sale taxes nationwide could have benefits. Amazon places many of its warehouses outside high-population states and away from major urban areas… If it starts collecting sales taxes, Amazon could build warehouses in or just outside major cities. The result: potentially lower shipping time and costs… And a tax embrace wouldn’t necessarily hobble Amazon’s price advantage. A William & Blair & Co. report said that, even without the sales-tax savings, Amazon is priced lower than other major retailers on 48% of items.

So to pay taxes or not pay taxes? That is not the question—that’s a classic diamond deal. The question is should Amazon spends lots of money and effort fighting off efforts to get them pay taxes?

What if I told you that one of the things we regularly speak about at Diamond Cutter Institute seminars is to urge people not to cheat on their taxes? Why? Because cheating is stealing, which obviously plants bad seeds—cheating people is the opposite of generosity, which is what actually brings financial gain. So that would be the last thing you would want to do it you wanted to make money.

On top of that, consider who you are cheating: we like to think of the government as an amorphous mass of faceless bureaucrats that don’t need my tax money. But the truth is, the government, like everyone else, has to meet its expenses, so if you cheat on your taxes who will that burden fall on? Other taxpayers. When you cheat on your taxes, you’re not just cheating one person, you’re cheating everyone in the whole country.

So, what Geshe Michael likes to do is pay extra taxes. If something is in question, or if there is income that could be tax-free, pay taxes anyway. Why? It’s a chance to do an act of giving for everyone in your whole country. Pay your taxes with joy; think about the social services and roads and parks and federal grants for the arts and developmental programs that you’re helping to pay for. That’s a nice seed to plant.

So, should Amazon fight against paying taxes? Not if they want to collect those kinds of seeds. And it wouldn’t surprise me at all if, by paying taxes, they improved on their 43% by year-on-year revenue growth (compared to more traditional retailers who expect 5%). So I agree with Mr. Woo:

Retail-chain competitors such as Wal-Mart and Target would like to force Amazon to collect sales taxes. Perhaps Amazon should consider granting their wish.

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3 Responses to Taxation without Representation

  1. Paul says:

    You make some interesting points Eric, though, I’m not sure I agree 100%. If taxes are used to enable war and the imprisonment of non-violent human beings, as I believe the majority of them are, paying taxes would go against the principles of protecting life and property. Yes the government has expenses like everyone else, but is it truly compassionate to fund destruction? Should you give money to someone on the street, knowing they will spend it on alcohol?

    Taxes themselves are also theft. Is it really better to fund a thieving organization and thus empower its ability to steal, or refuse to fund it at the risk that someone else will bear part of the burden?

    I certainly agree that ‘cheating’ may plant some unfavorable seeds. Though it seems to me that those seeds are much more benign than the seeds of funding violent behavior. I think that intentionality is crucial here. Avoiding taxes, I think, may actually be justifiable. And perhaps one of the best seeds one could plant in this regard is that of ceasing support for violent organizations.

    As for roads, parks, arts, etc. – there are voluntary ways to fund these programs. The idea that you have to pay your taxes or else not fund these types of programs is also a diamond deal. Specific charity and volunteer work seems to be a much more sensible method of seed planting, rather than paying for a huge mixture of conflicting seeds.

  2. ericbrinkman says:

    Dear Paul, thanks for reading, and for giving me the subject matter for my next blog post. 🙂 We’re in Bulgaria right now, starting a DCI retreat tomorrow, but I’ll get some time tonight to write up a response to your comments, which are great. 🙂

  3. Pingback: Aftershocks | Business Worldview

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