"Pajama Retailers?"

[Quinn]

I was reading thru Gregs thread on Introduce Yourself. This phrase caught my eye. What is meant by pajama retailer? Please excuse my ignorance on this however I'm sure there are others who might be confused......

[Feydakin]

A "pajama retailer" is a new thing brought on by the internet.. These are "retailers" that work from their bedroom, basement, living room, whatever, through a website and have no product, inventory, and quite often no knowledge about what they are selling.. They are simply a front door to a wholesaler..

You place an order with the pajama retailer, that order is sent on to the wholesaler who will actually package and ship the item to you.. The "retailer" never actually handles the product at all.. So his knowledge of the product may not be very much at all..

[Quinn]

What qualifies them to do this? Are they licensed?

[Feydakin]

They took the effort to get a business license and then found a wholesaler that will sell to anyone with money.. That's it.. Easy as pie..

The diamond trade is not the only one that has this.. It's just the latest in a long string of businesses that have been altered by the internet.. Like Wal-Mart, the internet sales can be a good thing or a bad thing for the local economy, but it's rarely nothing..

Look at all of the money that local government is loosing just on sales tax.. Just because you bought it over the net does not mean the you don't have to pay sales tax on it.. In fact, you are required to declare these purchases on your state taxes.. But people rarely do.. So we are tagged with new taxes to make up the difference (wheel tax anyone??) just one of many variables that are changing the world..

[Kelly]

They took the effort to get a business license and then found a wholesaler that will sell to anyone with money.. That's it.. Easy as pie..



Sounds like a disaster waiting to happen.......or the friend of a friend of a friend who meets you in an alley to show you his "wares"

[Feydakin]

It generally is.. Many of them have zero knowledge of the product, have never actually looked at any of it.. Just built a popular website.. Add to that, their overhead is generally near zero, so them making $100 on a $10,000 stone is cool to them.. Leaving the rest of us to charge for things that we never charged for in the past just to try to keep close ot thier prices and still make a living..

[Quinn]

The first major diamond I bought was probably from could probably qualify as the "pajama retailers" When I encountered a problem I found I had no recourse. I couldn't even put a face to the person I had dealt with. A hard lesson learned.

[Princess]

Please don't flame me but isn't it smart to buy from a person who has low overhead and can pass the savings on to the consumer? Seems like a win-win situation for all involved

A website is basicly a store which has 24 hour access and low rent.

[Kelly]

Princess..... aren't you at least concerned that the person you are buying from via the internet NEVER EVEN SEES OR TOUCHES the diamond they are selling and are simply drop shipping?

[Feydakin]

We are having a similar discussion on another board.. The issue of them actually knowing or seeing diamonds is a valid one.. But I think the more important issue is a business one..

When they are selling at such low margins they tend to be incapable of handling certain issues, such as returns, very well.. I know of at least one for sure, and do not doubt that ther are many others, where a customer decided to return a stone within the refund window of 30 days.. Now they are having a very hard time getting their money back..

They have been told that they could get their money back in "payments" over several months, but that a full refund was impossible.. This was a serious issue when the internet first started out.. Undercapitalised companies promising things that they could not deliver.. And I fear that the 'pajama retailers' will take us down this path again and put a black mark on the jewelry trade and the internet vendors as a whole..

I understand the desire for everyone to get the "best price".. But at a certain point "the best price" causes more damage to the industry as a whole and in the end hurts the consumer.. Too low of a price can destabilize an industry to the point where it will collapse as everyone tried to compete.. And I'm not sure that saving a few hundred dollars on a $10,000 purchase is worth the risk..

[Princess]

The REALITY Kelly is that you can save a LOT of money just buying them over the internet. No taxes, they provide ALL of the reports and as long as you buy with a credit card you are SAFE 100%.

[Kelly]

Hey Princess..... I bet you consider Wal-Mart to be the "All American" store also.

[Quinn]

Personal attacks are a bit over the line....

I know from my own experience that buying something as important as a diamond is best done face to face. The tiny amount of money that one can perceive as saving is lost when it comes to having a problem with your purchase or needing additional services.

[Feydakin]

The REALITY Kelly is that you can save a LOT of money just buying them over the internet. No taxes, they provide ALL of the reports and as long as you buy with a credit card you are SAFE 100%.

Uh Kelly, you do realize that, depending on where you live, not paying sales tax on an internet purchase is tax evasion, don't you?? This is another thing that is going to change dramatically over the next few years.. Property taxes are going up all over the place to compensate for lowered sales tax revenue.. This is a significant problem for many communities..

I'm not a fan of paying taxes any more than the next guy.. But, by not paying your sales tax you (the global you, not you in particular) have created a situation that can lead to far reaching problems that just aren't as obvious.. Wheel taxes are being implimented, higher property taxes, and less money for local government to work with.. I am a huge fan of the internet, but from day one I've always said that sales tax should be collected on internet sales..

It levels the playing field just a bit so that real stores, with real employees, some are even your neighbors, can earn a living and feed their families.. A bit overly dramatic, sure.. But it is an issue that needs to be addressed.. If for no other reason than to make it fair and the comepetition more balanced.. Right now huge numbers of mom and pop jewelers are going under, just like when the mom and pop book stores vanished.. But since it's retail many people don't see it as a problem, until the change hits their industry and puts them out of business as well..

BTW, what do you do for a living??

And yes, Wal-Mart's present condition would make Sam Walton cry.. This is not what he had intended when he started Wal-Mart..

[Gregory Diamond]

Please try to keep the discussions civil in here. We all have opinions and need to respect everyone's view even when they differ from ours.

Thank you

[Princess]

It's NOT tax evasion. The reason there are no taxes on internet purchases is to encourage people to use this medium more often and get confident with buying online. I'm sure that in a few years when everyone is buying the bulk of their purchases online instead of driving to a store the government will begin taxing internet purchases. Until then I am just taking advantage of a good thing. Saving 6% plus the added discount of buying from a low cost diamond dealer adds up to more bucks in the consumers pockets. If it were so bad and wrong the gov't would have done something about it long ago.....

Wal-Mart is a wonderful store. I'm a true blue 100% Wal-Mart fan

[Feydakin]

But it is Use (sales) Tax evasion..

The 'no taxes on the internet' mantra is actually a rule that no "NEW" taxes will be placed on the internet at the federal level.. [In 1998, Congress passed the Internet Tax Freedom Act (ITFA), which established a three-year moratorium on taxing Internet access services at the state or local level.] This was to keep the local government for adding a tax to your internet connection at home or at work.. Much like the long list of taxes you see on your phone bill every month..

At the state level you are still required to pay your sales tax (called Use tax on your tax returns).. [in December 2001, President Bush signed a two-year extension of the Internet sales tax ban. That extension expired in 2003, and as of December 2004, has not been renewed.] This is why some massive companies like Dell are now collecting sales tax for every sale that they make.. And it's why you have to pay sales tax on any internet sale where the webstore is located in the same state as the ship to address..

If there were "no sales tax" on the internet Dell most certainly would not be collecting, nor would all of the stores that charge you when they ship in state..

The push right now by some states (California being a prime example) is to start collecting sales tax on every web sale that touches that state.. So, if the vendor is in california, and the buyer is in Indiana, then the vendor would collect sales tax and give it to California.. They are claiming that collecting sales tax for so many tax localities is too hard for the vendors, so we'll just tax them for every sale and treat it as a local sale..

So, to say that there is no sales tax on the internet is false.. Not collecting and paying this tax that every other business must collect and pay is hurting both those businesses and the local communities which gather as much as 1/3 of their annual budgets from sales taxes.. And as larger ticket items (such as diamonds) see more sales online, this issue will become a very large one.. Many webstores in California have already had their sales records subpeanoed by Californi in an effort ot track down people that are not paying thier 'use tax'..

Steve -

[denverappraiser]

Princess,

Feydakin is right.

Sales taxes are imposed by the several states. Every state that has a sales tax also has a use tax. This is a tax on purchases made out of state by consumers within the jurisdiction of the appropriate taxing district. The way you contact the merchant is irrelevant. At least in Colorado (http://www.revenue.state.co.us/fyi/html/generl10.html), you are required to download and submit a use tax form with the appropriate monies for all out of state purchases where the merchant didn?t collect sales tax. Knowing failure to do so is subject to interest and penalties if you get caught. The fact that the state is lax about collecting these taxes is because they are lazy and they're stupid, not becuase the consumers don't owe it. (Greg, that was not a personal attack at the nice people at the Colorado Department of Revenue. It was general accusation about ALL the vampires who are unequally enforcing their tax laws because some are easier to collect than others).

In many states it?s even worse than this. The use tax is a line appears on the annual income tax return. Deliberately omitting information on this form is a felony and can be subjected to criminal prosecution as well as considerable financial penalties.

You can look up the rules for your own state at the State Department of Revenue webpage. You'll be appalled.

Neil

[Princess]

I'm sure the law states the buyer who purchases online is supposed to pay the taxes on an item.....BUT WHO REALLY DOES? Most folks just shop for an item online, purchase with their credit card and have the item shipped to their door. No taxes get paid, and I doubt the government is coming after many people.

Why should a shopper get socked paying an extra 6% in taxes or more just to buy locally?

[Princess]

Over the last year I have bought a LOT of items, household, clothes, jewelry etc online. I've saved a bundle. It's just like getting a 6% raise in my paycheck.

[denverappraiser]

I'm sure the law states the buyer who purchases online is supposed to pay the taxes on an item.....BUT WHO REALLY DOES? Most folks just shop for an item online, purchase with their credit card and have the item shipped to their door. No taxes get paid, and I doubt the government is coming after many people.

Why should a shopper get socked paying an extra 6% in taxes or more just to buy locally?

I'm not disputing that this particular crime is easy to do, that lots of people do it, that the risk of prosecution is fairly low or that many of the criminals involved are unaware that what they are doing is illegal. I'm sure Steve knows these details as well. You're the one who said it wasn't illegal. This statement was simply inaccurate and, since this is a public advice forum, it seemed appropriate to correct you.

Neil Beaty
GG(GIA) ISA NAJA

[Feydakin]

I'm sure the law states the buyer who purchases online is supposed to pay the taxes on an item.....BUT WHO REALLY DOES? Most folks just shop for an item online, purchase with their credit card and have the item shipped to their door. No taxes get paid, and I doubt the government is coming after many people.

Why should a shopper get socked paying an extra 6% in taxes or more just to buy locally?

A few things.. The state of California is going after these purchases quite actively now.. Latest news had them sending subpeonas to nearly 100 major online vendors asking for sales records so that they could verify that those taxes were paid.. Others states are not far behind on this.. It is coming, and in some states it is a major crime with major fines..

And in some jurisdictions they can go back 7 years for those tax records.. And theoretically, even further for tax related issues..

As for your second comment.. Well, it depends on how you view the world.. I am an active web developer with dozens of online stores that I help manage.. And I rarely buy anything on the net.. I prefer to shop locally, pay a bit more, and know that my money is staying in my community and possibly helping another small shop stay open just that much longer..

But my wife loves Wal-Mart.. She'll drive an extra 30 minutes just to shop at Super Wal-Mart when there is a fabulous local supermarket 5 minutes away..

All we are doing here is warning you that 1. you and possibly millions others are breaking the law, and 2. if they don't come after most of the major purchasers soon, they will at least start charging sales tax..

Steve -

[Jeff A.]

There are many very aggressive Attorney Generals in the United States who love to see their names in the national spotlight. It's just a matter of time before more states will pursue the taxes that they believe are rightfully theirs.
Stay tuned.

Jeff A.
www.metrojewelryappraisers.com

[Princess]

I doubt that any attorney generals are going to be chasing down consumers who buy off the internet. Most interent retailers are getting much more politically conected. I doubt that govt is going to do anything to slow the growth and prosperity of internet dealers.

BTW.... Kelly, your quite the *****

[Kelly]

That's tax evasion.

BTW: Princess..... I won't even address your opinion of me. This is a forum, don't go getting your panties in a tangle.

[Quinn]

How would a person go about claiming this purchase to the gov't. I've heard of VAT (value added tax) and import taxes. This is really confusing. I'm not sure the average person is going to go out of their way to list off all of their internet purchases at the end of the year and report them.

How would the gov't even know what a person buys via the internet?

[Feydakin]

Many states have a line on their state income tax forms for you to declare these purchases..

As for how they find out, like I said earlier.. The state of California subpeonaed something like 100 web sellers sales records for the previous 5 years.. From there they looked at larger purchases and compared those names / addresses with tax records to see if those were declared..

I don't have the numbers handy.. But I seem to remember something like 100+ million dollars in undeclared sales were targeted for payment in California with the appropriate fines added as well.. I wouldn't be surprised to see this information used to trigger full on audits as well..

Just because it hasn't happened n the past doesn't mena that it won't happen next week.. We are talking about a lot of unclaimed revenue that the state governments feel that they are owed and they will start going after it..

[Quinn]

Do internet retailers have to report sales to the government? Do they pay the tax or do the buyers pay the tax?

[Feydakin]

Which tax are you referring to?? Sales Tax or general income taxes??

In either case, we are required to report all sales.. Then sales which we are not required to collect sales tax for (services, mail order out of state, internet out of state, etc.) are deducted and we must send in the appropriate amount of sales tax for those taxable sales that remain.. Right now Dell collects and reports sales tax for every sale they make, anywhere in the US, and remit those taxes to the appropriate authorities..

Steve

[Quinn]

So if I buy something off of the internet from out of state, have it shipped to my home and pay for it, I may get a knock on my door from the IRS saying I owe additional taxes? :eek:

Won't the retailer just not report it?

I honestly thought that the government was letting internet sales go tax free to help build up confidence in using the internet.

[Feydakin]

We all have records that we are required to keep.. Some of us to a less good job than others as far as exactly who bought what.. But if we process credit card orders, there is always a paper trail leading back to you.. And if those records are subpeoned then we have to give them up..

The state of Illinois just hired another 57 tax agents in an effort to go after just this thing..

The whole issue of "tax free internet" was false, is false, and always will be false.. It's a myth that has been perpetuated and misrepresented since the very beginning.. When you purchase online, or from a catalog, you are not charged a "sales tax".. You are, however, required to pay a "use tax" in most jurisdictions.. It's technically not 'sales tax' but it is still a tax..

As I said earlier, the no tax on the internet is really a moratorium on adding 'new taxes' to the service of getting on the net..

[denverappraiser]

I doubt that any attorney generals are going to be chasing down consumers who buy off the internet. Most interent retailers are getting much more politically conected. I doubt that govt is going to do anything to slow the growth and prosperity of internet dealers.

Princess,

You have a lot more faith in the government than I do. Look at the numbers. Sales of tangable goods across interstate lines is a multi-hundred billion dollar industry and it's growing fast. Much of this growth is the result of customers who contact the sellers by internet and then ship by FedEx, USPS and UPS. Almost all of these are taxible sales based purely on laws that are currently on the books but that have lax enforcement. Most jurisdictions have a use tax of about 5-8%. They can look 7 years back and add interest and penalties to whatever they find. None of this comes out of the pocket of the internet dealers although I can't imagine that the California Department of Revenue, or the tax collectors from any other state for that matter, are all that interested in the success of out-of-state merchants when they see billions of dollars on the table. My state (Colorado) certainly has no problem aggressively attacking taxpayers that they think owe them money and they have no sense of humor about it at all. Perhaps you're state's taxing authorities are nicer.