Discussion on selling/taxes etc. (from Arrowhead threat)

[fr8kar]

I have nothing of substance to add to this topic other than to say I am delighted to read valenciajim's posts on this subject. They are enlightening.

[lvrr325]

I'm aware of a shop who back before Wayfair when a customer from out of state came in he billed them on the computer as though they'd mail ordered the items so they paid no tax. A PC was the POS system there so it was all tied together.

At least one hobby manufacturer is still not charging tax on their internet orders, which was one factor in purchasing direct from them last month.

People aren't dumb and will look to avoid taxes whenever possible, whether just to save money, or because they believe taxation is theft. Finding new ways to come after people for taxes will simply discourage people from buying or selling things where they're subject to the taxes.

That's one reason for the push to digital currency, once all transactions are electronic and trackable it becomes impossible to pretend they didn't happen like you can with cash sales. I had to get a tax number with the state to get into certain events and I pay them annually (many states everyone is quarterly, here they made it an annual filing if you're below a certain dollar threshold). But I could tell them virtually anything I wanted and even if they audited me so long as I produced a record that matched up there's nothing they could do. The only proof is what records I keep. If every transaction I had to run through PayPal or some other electronic means, there'd be a second record they could look at.

[valenciajim]

Ivrr325, you make some great points, but as Ben Franklin said, "Nothing is certain except for death and taxes."

People frequently seek to avoid taxes whenever they can get away with it. I personally don't see this as the government finding new ways to come after people, but rather governments trying to adapt to technological changes that have circumvented historical tax collection practices. Governments have always tolerated a certain amount of tax leakage, but when the leak turns into a flood such tolerance wanes. Catalog sales were immaterial in the big scheme of things while online sales dominate the economy. So the rules had to be changed in order for the government to maintain its tax base.

Cryptocurrencies are the next frontier. The IRS Commissioner referred to the tax evasion potential of cryptocurrencies in his Congressional testimony. From a tax perspective, buying a cryptocurrency is like buying any other foreign currency. If you buy $100 worth of foreign currency and then use that currency to buy $110 of goods or services, you have a $10 capital gain when you pay for the purchase using the foreign currency. The difference with cryptocurrency is that there is no traceable record, so you are betting that the IRS won't catch you. I think the way that tax authorities will deal with this is to do a something similar to a lifestyle audit. They will try to track the purchase of cryptocurrency and verify the amount of cryptocurrency held at subsequent intervals. If the amount goes down, they will impose some sort of tax and force the taxpayer to prove that the imposition of tax was incorrect. Lifestyle audits are one of the few areas where a taxpayer has to prove that the IRS made an incorrect assertion. Usually life style audits are reserved for people who live a rich lifestyle but pay no tax. As technology advances and audit work is done by computers, instead of humans, such techniques are likely to become more prevalent.

Cryptocurrencies are also highly speculative and contain risks that may or may not offset the advantages of tax avoidance. I am concerned that consumers do not fully appreciate those risks. It is one thing for well capitalized folks like Elon Musk or Apple Computer who can afford to lose their investments to speculate in cryptocurrencies, but it is quite another for mom and pop businesses to do the same.

Finally, in large measure, our tax system is voluntary. The tax authorities cannot audit everyone. Independent verification of income is a great way for the tax authorities to test whether someone is understating income. As taxpayers increasingly circumvent the system through technology, the authorities will eventually resort to using technology to catch up with the situation. For example, I know that the IRS is increasingly using data analytics, using the data it has accumulated through its previous taxpayer audits, to predict the behavior of taxpayers currently under examination. Currently, the IRS uses this data to identify areas in which to focus an audit emphasis. Eventually, I fear taxpayers will have to show why their actual results differ from the IRS expectations. Welcome to Big Brother and the world of surveillance capitalism.

These are issues for subsequent generations. I am glad that most of my life was lived in a simpler era.