Alabama State Sen. Gerald Dial received a lot of press when he proposed the elimination of the grocery tax. (For instance see here and here and here) How progressive of a “conservative Republican,” right?
Upon greater analysis, his plan did not look so progressive or compassionate. “Sen. Dial’s plan calls for phasing out the 4 percent sales tax on groceries over four years while at the same time raising the sales tax on non-grocery items from 4 percent to 5 percent.”
The critique actually started when his fellow GOPer Represenatative Dwayne Bridges withdraw his support of Dial’s plan because he recognized the Dial proposal was actually a tax increase.
Ever since, the newspapers have piled on. The Mobile-Press Register editorial board wrote:
Our problem with the plan is that it may not accomplish what it’s supposed to do, which is to make it easier for the working poor to buy what they need. If eggs and milk are less expensive, but laundry detergent and toilet paper are more costly, then what’s the point?
For starters, removing the state sales tax on food and making up for it with a higher sales tax on other goods hurts those who stand to gain the most by getting rid of the food tax. Obviously, they buy other things, so the higher sales tax would cut into whatever gains they made by not paying a state sales tax on food. That defeats the purpose of eliminating the food tax, or at least some of it.
And the Huntsville Times questioned his proposal along the same lines:
Removing the state sales tax on groceries would save $4 on $100 worth of groceries a week, or $208 a year. The savings would be $312 a year for a $150 average weekly grocery tab.
That can mean a lot to a poor family. And remember, rich and middle class shoppers would get the grocery tax break as well.
But while milk and vegetables would be less expensive, the cost for shoes, shirts and toilet paper would go up. What, then, would have been accomplished?
An editorial in the Birmingham News was fairly blunt:
Democrats for years have tried to exempt food from sales taxes, hoping to make up for the lost revenue by nixing the federal income tax exemption. Republicans always balked, saying it would hurt the wealthy and the middle class. Now they turn around, in the name of the people, and heap more burden on … the people.
And the poorest of them, at that.
This is not about Republicans and Democrats. It is a scam no matter what party backs it. And it’s bad for Alabama.
Because like it or not, the people of Alabama still are Alabama.
Perhaps someday our leaders will realize that preying on the people is not the best way to lure new business or brainpower or opportunity. A state that fails to value its own citizens is not really an attractive destination.
So no, Sen. Dial. We’re not buying your disingenuous grocery bill. Not this time.
I had tweeted my criticism of this bill on November 27 and, that same day, even suggested to radio-talk show host Dale Jackson that we should eliminate the grocery tax and replace with a internet sales tax. I had also suggested such, in more detail, on an online Facebook forum called Clay County Politics. Senator Dial must not have liked my suggestion or criticism because he posted something along these lines:
Alabama already taxes internet and catalog sales if they have a physical presence in the state. The federal government will not allow us to tax others. Any lawyer that knew what they were talking about would know this unless they got their law degree over the internet. It is easy to sit in the stands and complain about those trying to make a difference.
(This is not the exact quote but very close; Clay County Politics went offline for some reason so I cannot retrieve the exact quote.)
(UPDATE: Here is the exact quote (sic): “We in Al require both catalog and Internet sale tax collection if the seller has a location in the state . The fed govt will not allow us to collect from others . I would think anyone with a law degree would know this unless their degree came from the Internet “.it is so easy to set in the stands and critics those who are trying to play-make a difference”)
Nevertheless, here was my response:
Sen. Gerald Dial, I will refrain from the snide retort for which your post deserves and get right to the point. The Supreme Court case on point is Quill v. North Dakota, which ruled that out-of-state retailers without a “nexus” with the state are exempt from that state’s sales tax. Today, stores such as Books-a-Million pay a state sales tax on internet sales because they have brick-and-mortar locations here. (Although their internet operations, I believe, still avoid county and municipal taxes.) However, Internet retailers such as Amazon and Overstock do not remit any sales tax under current Alabama law.
The National Conference of State Legislatures estimates that Alabama will lose $357 million in 2012 by un-captured internet sales tax. More modestly, a Tennessee study estimated Alabama will lose more than $170 million in 2012.
Amazon, Overstock, and, possibly, E-bay sales could be subject to Alabama sales tax though. A sufficient constitutional “nexus” does exist because they have “affiliate”/third-party sellers within Alabama. (Admittedly, e-Bay is not as strong a case.) Sen. Dial, appropriate state legislation is all that is needed to cure this. New York, Rhode Island, North Carolina, Illinois, Arkansas, Connecticut and California all have legislation which taxes Amazon and Overstock for sales through their websites. If the internet retailers have “affiliates” or affiliated companies based within their borders, these states require the online retailers to collect sales tax. To my knowledge, no court or state Attorney General, that has reviewed this type legislation, have agreed with your constitutional objection. (And if Amazon gets cute and tries to terminate the affiliate nexus, then include a requirement for the Amazons to report the sum of all purchases through them by Alabama customers to the Department of Revenue.)
So, Sen. Dial, contrary to your post, the legislative actions I suggest are perfectly constitutional and lawful. Not only that, I believe my suggestion accomplishes several goals: grocery taxes are largely lifted, not just shifted, off the poor, the state budget is not harmed, and the playing field between locally-owned retailers and internet retailers is leveled.
On the other hand, I question whether your proposal accomplishes the goal of removing taxes off the poor. As noted, by the Montgomery Advertiser yesterday:
“But Dial’s proposal really doesn’t do much to help low- and middle-income working Alabamians. And in fact, it could hurt the poorest of them. By shifting the sales tax to other goods, working Alabamians in the middle and at the bottom of the wage scales wouldn’t really gain much, if anything. Whatever they would save on sales taxes on groceries would be offset by the higher sales taxes on other items. But consider the impact on Alabamians with really low incomes — those who qualify for federal food stamps assistance. Groceries purchased with food stamps are already exempt from sales taxes. So these families would actually be hurt by Dial’s bill because they would get little or no benefit from removing the state sales tax on groceries, but they would have to pay the higher tax on other items.”
So while there may be objections to my proposal, the lawfulness and constitutionality is not one of them.
By way of example, here is a copy of the North Carolina statute:
Mail Order Remote Sales. – A retailer who makes a mail order remote sale is engaged in business in this State and is subject to the tax levied under this Article if at least one of the following conditions is met:
(3) The retailer has representatives in this State who solicit business or transact business on behalf of the retailer, solicits or transacts business in this State by employees, independent contractors, agents, or other representatives, whether the mail order remote sales thus subject to taxation by this State result from or are related in any other way to such the solicitation or transaction of business. A retailer is presumed to be soliciting or transacting business by an independent contractor, agent, or other representative if the retailer enters into an agreement with a resident of this State under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet Web site or otherwise, to the retailer. This presumption applies only if the cumulative gross receipts from sales by the retailer to purchasers in this State who are referred to the retailer by all residents with this type of agreement with the retailer is in excess of ten thousand dollars ($10,000) during the preceding four quarterly periods. This presumption may be rebutted by proof that the resident with whom the retailer has an agreement did not engage in any solicitation in the State on behalf of the seller that would satisfy the nexus requirement of the United States Constitution during the four quarterly periods in question.