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Will State Treasuries Get Wise to Geolocation?

12 Aug

Slowly, mobile users are becoming increasingly complacent with giving up the last remaining visages of privacy when it comes to using a mobile web browser or using mobile native apps to do the most rudimentary tasks.  Just five years ago, imagine the adoption rate an application would have that required your exact geographic location and the rights to read the names and phone numbers of your entire digital Rolodex to let you read the front page headlines of news.  It would fester in digital obsolescence through right-out rejection!  Today, it’s a different ballgame.

There’s some interesting changes I can foresee that will come out of these shifting norms that have nothing to do with the overblogged concepts of targeted advertising or the erosion of our privacy.  There’s an awesome company called Square has a nifty credit card reader that plugs directly into the audio port of a mobile device to create instant point of sale devices with a lot of flexibility and little capital investment.  Even this can’t be called new  by today’s blogosphere standards, but something that caught my attention in beta testing this service was its requirement to continuously track your fine GPS location as an anti-fraud measure.  Pretty sensical, but also, pretty telling of things to come.

Anyone’s whose been following the tech world recalls the recent tiffs between Amazon and various states, most recently of those being California, that have tried to get a slice of the revenue generated by sales addressed to their state.  Large corporations can keep playing evasive maneuvers with state legislatures, and small business brick-and-mortar retailers as well as state coffers continue to feel the squeeze as shoppers become continuously comfortable and familiar with making large ticket purchases online, both to comparison shop, but also, quite obviously, to avoid paying state and local sales taxes.  A looming federal debt crisis that is decades away from a meaningful resolution means less distributions to states, leaving each to pick up a larger share of the tab for basic services, infrastructure improvements, and some types of entitlements.  States have reacted two-fold: to try to squeeze the large online retailers with legislation, and secondly, to require state taxpayers to volunteer their “fair share” by paying use tax.

Who accurately reports their online sales for the last tax year for the purposes of paying use tax?   Anyone that knows me is well aware of my almost maniacal love for and usage of budgeting tools that allow me to easily pull up a report of every online purchase I’ve made in a given time period in a matter if seconds.  But many people who owe hundreds in state use taxes file their returns the same as my parents, who purchase nothing online, and report zero in this box.

It would be relatively trivial from a technology perspective, but predictably forthcoming from a policy perspective, that this free ride is about to end.  One-third of smartphone owners have made a mobile online purchase from their phone, and a full 20% use their device as a fully-fledged mobile wallet.  47% of smartphone owners and 56% of tablet owners plan to purchase more products on their respective devices in the future.  With the skyrocketing adoption of mobile as a valid, trusted payments platform, it won’t be long before a majority of physical goods transactions are made with these devices.  In the name of “safer, more secure transactions”, consumers will likely be prompted to, and likely won’t think twice about, revealing their location from which they make that purchase.

No matter how much we might muse to the contrary, legislators, nor their more technically savvy aides, aren’t oblivious to the coming opportunity this shift will provide:  Imagine a requirement that any purchase made would log the location of the purchaser at the time the transaction was made, and charge online sales tax based on that location.  Since most mobile users spend their lives in their home location, this would keep a high percentage of taxes collected in this manner in the municipalities that provide services to the end consumer, reclaiming unreported taxable sales in a manner consistent with the collections prior to this massive behavioral shift.  It also levels the playing field for small retailers, who have to collect the same rates on their purchases.

It’s an intriguing scenario, and one not far from reality.  It may be this, and only this, that creates a consumer backlash against the complacent acceptance of leaking geolocation for anything other than maps or yellow page-type applications.  It may create scenarios where people travel to an adjoining town which creates a digital “tax haven” by instituting free municipal WiFi and low tax rates to drive a new form of digital tax haven tourism.

In any case, it’s definitely something to think about.

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