Laws of Unintended Consequences(?) - Scroll Down Page for Visual Examples

Maryland's proposed "Online Sales Tax" legislation, which is really "Advertising Nexus" language, like most laws implemented by man, will have unintended consequences. We have seen extremely negative results, impacting thousands of publishers, after similar laws have been enacted in other states. Some states have already repealed those laws. However, virtually the same legislation that has proven to be so disastrous to small Internet publishers in other states is being considered in Maryland and some are expecting different results — which leads one to wonder if all of the consequences that will certainly occur, are completely unintentional.

FULL DISCLOSURE - If you click on any example advertisement on this page, or any "real advertisements" on any other page of this Web site, and then make a purchase, B4UBUILD.COM will receive a small advertising fee. As an S-Corporation, that income will be passed through as taxable income on my personal tax return and will therefore be subject to State and Federal income tax at a personal rate. You will not pay any more than you would if you went directly to the vendor offering the product - in state or out of state - but if you are not charged sales tax by the vendor, you are required by every state where sales tax is collected, to file a sales and use tax form and submit the applicable tax to your local taxing authority(ies).

And, please make your purchases B4 a similar version of this proposal is passed — the income we earn from advertisers is what allows us to provide people from all around the world with a free source of custom home building and residential construction information. Without your support we would not be able to continue this work. And, with home construction activity at a low and a daughter in college, we could really use your support!

Should this legislation become law, much of the taxable income my business is currently receiving from advertisements placed throughout this Web site will be eliminated. At which time, the custom home building and residential construction information that B4UBUILD.COM has been providing to visitors around the world, for more than 15 years, may no longer be available to you.

Of course, should this proposal become law, you will still be able to go directly to any vendor who does not currently collect sales tax on behalf of your state or local jurisdiction(s) and make the same purchase. You will still be able to click through a text link or a banner advertisement on another Web site, the office of which is not located in Maryland, and thereby help small "main street" businesses in other states earn an advertising fee, which their states will tax. You will still be responsible for whatever taxes Maryland decides to place on you. And, Maryland residents will lose that advertising income - not just from Maryland residents, but also from every visitor who lives in any town, city, county, state, or country who currently visits this Web site.

House Plans, Garage Plans, Shed Plans are Purchased by People from Around the World

HWEPL13090 Two car garage with loft
Click here for floor plans and a larger view.
HWEPL65012 3 car garage with playroom above
Click here for floor plans and a larger view.
 

There are more than 7 billion people living in the world. An estimated 2.2 billion people have access to the Internet, and therefore, access to any given Web site. The entire population of Maryland is 5.8 million. Accordingly, and in theory, 1 in 379 people who visits any given Web site published in Maryland is actually required to pay Maryland sales and use taxes.

Let me repeat that a little differently, because it is VERY important to understand. On average statistically, only 1 out of 379 people who visit the B4UBUILD.COM Web site actually lives in Maryland. Meaning that less than 0.265% of the people who make a purchase after following an advertising link on this site would actually be required to pay Maryland sales tax. However, 99.7% of the people who currently visit this site would be subject to the unintended consequences of this legislation - talk about fairness?

The vast majority of visitors to the B4UBUILD.COM Web site are living and working in other states and other countries throughout the world. Accordingly, the vast majority of house plans purchased through the house plan providers advertising on B4UBUILD.COM are purchased by people who are not, and never would be, responsible for paying Maryland sales and use taxes.

Also, since the vast majority of house plans being advertised are unique to the sellers offering them, and not available in brick and mortar stores within Maryland, there is nothing at all "unfair" to "Main Street" in this example.

However, the plans company with whom my business has an advertising agreement has already told me that they would be forced to terminate our agreement if Maryland passes a "nexus expanding" law. Regardless of whether or not it is constitutional, the fact that they would have to expend resources to deal with a law in another state, which they could easily avoid by moving their advertising dollars, leaves them with the only realistic business option they are given, to sever our advertising agreement.

Additionally, the Maryland sales tax status for a specific set of building plans may also depend upon whether or not they are being offered multiple times to many people, or customized for individual buyers, or delivered on a piece of paper, or provided on a disk, or electronically downloaded. In other words, at the very least, a fair amount of time is required to determine the applicable sales tax status for any given set of construction drawings, or risk being legally liable for failing to collect and remit the correct sales tax that might apply in any given circumstance - especially troublesome if your house plan business is located in another state, thousands of miles away.

Sales of Electronic Downloads Are Not (currently, I don't think) Taxed in Maryland

Microsoft Office Home and Student 2010
Download Now
Microsoft Office Home & Student 2010 - 3 PC License
Chief Architect Home Designer Architectural 2012
Download Now

Chief Architect Home Designer Architectural 2012
 

Frankly, I don't know how accurate this particular example is, which is part of the problem. It has been reported that a "digital download" proposal in the Governor’s Budget Reconciliation and Financing Act (BRFA) was rejected by the Senate Budget and Taxation Committee this year. Accordingly, it would seem that Maryland sales tax would not be applicable to the downloadable versions of any software title. However, I believe boxed software is taxed. So, I am unsure whether the "digital" description or the "software" description takes precedence.

If the act of buying and downloading this software is accurately described as purchasing a digital download, it would not be subject to Maryland sales tax. And, since electronic downloads are by their nature moved from one computer to another, there is no competition with local "brick and mortar" stores.

However, none of this matters if this Bill becomes law, because Amazon.com will terminate our advertising agreement — the same business decision I would be forced to make under these circumstances if it were my decision to make — and as a result, B4UBUILD.COM will lose all taxable income it currently receives through advertisements for electronic downloads.

Branded or Unbranded Donation Buttons

No Merchant Logo

PayPal Logo
 

This example is clearly - at least I hope - not an instance where this proposed legislation is/was intended to apply. While non-profit groups often include a "Donate" button on their Web sites, they can be included on any Web site and/or in HTML based e-mail messages. In fact, if you click on either of the above links, you can make a donation to B4UBUILD.COM to help cover some of the costs of creating and maintaining this Web site - it would be taxable income for my business, but not tax deductible for you.

However, it would seem that this example might also fall within the legal description of the proposed legislation:

" (1) THE SELLER ENTERS INTO AN AGREEMENT WITH A RESIDENT OF THE STATE UNDER WHICH THE RESIDENT, FOR A COMMISSION OR OTHER CONSIDERATION, DIRECTLY OR INDIRECTLY REFERS POTENTIAL CUSTOMERS TO THE SELLER, WHETHER BY A LINK ON AN INTERNET WEB SITE, OR OTHERWISE; "

In this case, both the 'branded' and 'unbranded' donation buttons lead to a form hosted by PayPal, which is an out-of-state "SELLER" of products and services. Both buttons "DIRECTLY OR INDIRECTLY" refer "POTENTIAL CUSTOMERS TO THE SELLER" - regardless of whether or not they are clearly 'advertising' for the seller. If any of the products or services PayPal offers are taxable in Maryland, and if one argues that "CONSIDERATION" is being offered in the form of extra 'discounts' on standard transactions fees for accounts that have a large volume of transactions, might this be considered a sufficient nexus for tax purposes?

OK, so this might be a bit of a stretch, but it is still plausible. And, in my humble opinion, the notion that any one state has the constitutional authority to define physical location in that state because of some "CONSIDERATION" defined in an "AGREEMENT" with a resident of that state "BY A LINK ON AN INTERNET WEB SITE, OR OTHERWISE; " is a bit of a stretch also.

 

Digital Books for the Barnes & Noble NOOK or the Amazon.com Kindle Edition

Building Construction Illustrated - NOOK Edition
NOOK Edition

Available only from Barnes & Noble
Building Construction Illustrated - Kindle Edition
Kindle Edition

Available only from Amazon.com
 

Here is an example where B4UBUILD.COM is featuring virtually identical product advertisements for the same "electronic edition" or "eBook" of a title that is offered by BarnesandNoble.com, with whom we have an affiliate agreement, and Amazon.com, with whom we have an affiliate agreement. Neither product is "better" than the other. Neither product is offered by "brick and mortar" stores, and even though Barnes & Noble has to collect sales tax on sales to residents in most states - because they have an obvious physical presence - visitors to my Web site should not be forced to by a Barnes & Noble NOOK Color to read eBooks instead of an Amazon.com Kindle Fire just to makes things fair for the other. And, once again, B4UBUILD.COM is being caught in the middle.

NOTE: While I love Barnes & Noble and I thoroughly enjoy using the NOOK Color I own — the screen is fantastic — at the time the above example was established (3/19/2012) the NOOK eBook version was selling for $41.95 and the Kindle eBook version was selling for $19.24 - it would seem to me that this could hardly be an example of "taxation fairness" when I am not aware of sales taxes in ANY state that could possibly account for such a substantial difference in price. Of course, this is only one specific example, prices vary from day to day, and I know there are examples of the opposite situation. The point that needs to be made is that there are many factors that determine the selling price of any given product, whether in a physical store or when displayed in a virtual store on a computer screen.

INTERESTING UPDATE (11/27/2012): Perhaps it is just a coincidence, but it would appear that at least a few people at Barnes & Noble and Amazon.com might have read this page. At last check, the NOOK version had dropped substantially in price down to $28.47 while the Kindle version went up a fair amount to $27.47 - very interesting;-)

With all due respect, it is my humble opinion that my government should not be in the business of "leveling the playing field" or "making things fair" or deciding what qualifies as a "Main Street" business or choosing winners and losers. Especially when it appears that the "fairness" battle is being waged between some very large "Big Box" stores (which I like) and a handful of Internet giants (that I like just as much for different reasons).

B4UBUILD.COM should not be forced out of business, and I should not be forced to move my family out of this state, in order to help any other business overcome their competition. The process of changing the Interstate Commerce clause to allow for some form of Internet sales tax collection needs to be solved at the national level by the United States Congress.

This is a very serious subject that could have disastrous effects on my business and my family, as well as, thousands of other Maryland entities. Every effort has been made on this writer's part to perform due diligence in my research and reporting. Painstaking efforts have been taken to present information accurately and make these explanations as clear as possible. However, for those of you familiar with my work on the B4UBUILD.COM Web site, I'll end on a "lighter" note...

Now, if you wouldn't mind buying lots of stuff after following any of the advertising links on the Shopping Page, perhaps I can earn back some of the income I have lost while spending time writing about this proposed law, testifying in front of the Maryland Senate committee, writing emails to Maryland delegates, talking to legislative assistants and legal representatives, and staying awake at night worrying about whether or not a handful of well-meaning politicians will "unintentionally" force my small "main street" business out of business, and/or force me and my family to move to another state - and there's still that college tuition;-)

Good luck with your project, thank you for visiting B4UBUILD.COM and have fun building!

Sincerely,

Greg Susman