July 15, 2011
Amazon.com, Infant No More, Should Be Charging Sales Tax: View
In a new editorial, Bloomberg.com comes down firmly on the side of online sales tax collection:
There are lots of good reasons to shop online, but dodging sales tax shouldn’t be one of them. Amazon.com Inc. (AMZN) is battling the authorities in its largest state market, California, over this principle. The good arguments are on the Golden State’s side.
Among those good arguments, the article cites the following:
- Local retailers have to collect sales tax while online retailers don’t, putting local retailers at an unfair disadvantage: “Brick-and-mortar retailers have been fuming about this disparity for years. “We’re at a huge competitive disadvantage with online retailers,” says Bill Dombrowski, president of the California Retailers’ Association. “It’s bleeding us.”
- States are losing millions of dollars in uncollected taxes: “California’s fiscal experts aren’t happy either. State Assemblyman Charles Calderon estimated that California was missing out on $83 million a year in sales tax that wasn’t being collected by Amazon. (The state asks taxpayers to compute their online tax obligations as part of annual income tax filings, but hardly anyone does.)
- Sales tax is necessary to pay for vital community services: “It’s important to remember, though, that sales tax isn’t just a nuisance charge you pay every time you eat at a restaurant, buy a T-shirt or get your car’s oil changed. In the 45 states that charge sales tax, these levies are a major way of paying for roads, police, teachers and other services.”
Note, however, that one of the first points the editorial makes includes several inaccuracies, which we’d like to clarify:
Online stores rang up more than $170 billion of purchases last year, accounting for about 9 percent of all retail sales. That’s a far cry from these merchants’ tiny start in 1998, when Congress granted a three-year reprieve from taxation, believing that the fledgling Internet sector needed help getting started.
This is a reference to the Internet Tax Freedom Act, which prohibited any new or discriminatory taxes on Internet access. It did not, however, prohibit the collection of existing sales or use tax on e-commerce transactions (as our friend Michael Mazerov at the Center for Budget Policy and Priorities points out).
We also believe that the $170 billion in online purchases in 2010 is too low a figure. Although it is based upon Census Bureau data, it doesn’t include other remote retail transactions including mail-order purchases ($106 billion) and online auctions ($75 billion—eBay’s 2010 Gross Merchandise Volume, per this source); when those figures are included, the number more than doubles, to approximately $350 billion in sales for which sales tax is not collected. (See our January post on the Census figures for more.)
Here’s the math: at an average national sales tax rate of approximately 6.8% (not that we are suggesting there should be a national sales tax!), that’s $23.8 billion in uncollected sales tax. (For those of you who follow this debate, that number probably looks familiar: it’s the one lawmakers and politicians frequently cite.)
The editorial concludes:
In pushing the referendum, Amazon has been arguing that California needs to do more to attract business, not drive it away. That’s doubtlessly true, but it’s hard to see how lenient tax treatment for online retailers furthers that goal. As the sponsor of California’s new law rightly put it in May, “If you oppose this bill, you support tax evasion.”
It’s a terrific statement of support for California and online sales tax collection from a pro-business source. The only thing that could have made it better is if it had voiced support for federal legislation, which is the best way to ensure all retailers follow the same sales tax collection rules and at the same time provides an incentive for states to simplify their sales tax collection guidelines.
Nevertheless, we’re thrilled to see Bloomberg take an unequivocally positive stance in favor of online sales tax collection.
2 Comments | 
Issues | Tagged: Amazon, California, Internet Sales Tax, online sales tax, sales tax | 
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Posted by FedTax
July 14, 2011
The New York Times: Amazon Takes on California
The New York Times just published an article covering the AMZN proposed referendum to repeal ABX1 28.
One part, which we are now investigating, really caught our eye:
Amazon said this week that it would push a voter initiative in California that could eliminate sales tax for virtual sellers with only a modest physical presence in the state. (emphasis added)
We hope that the voters of California don’t get tricked into thinking the referendum would actually repeal the sales tax itself. Regardless of the outcome of this proposed referendum, if a “virtual seller” refuses to collect sales tax, consumers will still owe it—just as they have in California since 1935 (no, that is not a typo).
All-in-all, it is a well-written and thorough piece, but we wish the writers had pointed out the fact that with federal legislation, such as the much anticipated Main Street Fairness Act (MSFA), states could legitimately repeal affiliate nexus laws (no voter referendum necessary) while simultaneously generating significantly more revenue. This is because the MSFA would authorize states (those that have simplified their sales tax laws by adopting SSUTA guidelines) to compel remote retailers to collect sales tax at the time of the transaction. This would allow states to collect the approximately $23 billion in sales tax that goes uncollected each year (nearly $1.7 billion in California alone).
We will let you know what we learn about the “eliminate sales tax“ quote.
Leave a Comment » | Federal Legislation, Issues, State News | Tagged: affiliate nexus legislation, affiliate tax, Amazon, amazon affiliates tax, California, Internet Sales Tax, Main Street Fairness | Permalink
Posted by FedTax
July 13, 2011
Los Angeles Times: Amazon sales tax battle centers on jobs
A Los Angeles Times article examines the Amazon proposed referendum on California’s affiliate nexus legislation and what it calls the “escalating rivalry between Amazon and bricks-and-mortar retailers, which have seen an increasing portion of their sales go to the Internet.”
It has an efficient summary of each side’s argument; unsurprisingly in this economy, both focus on jobs:
Those conventional retailers say they are at a disadvantage because consumers perceive that they don’t have to pay sales taxes on Internet purchases, in effect giving buyers a discount of nearly 10%.
The stores also point out that they provide jobs — to salespeople, clerks, cashiers and more — and that California can ill afford to give a tax amnesty to Internet retailers that operate elsewhere.
“Amazon’s continued disregard of the law has cost this state over 18,000 lost jobs and a $4.1-billion loss in sales resulting in over $7 billion in lost economic activity in 2010 alone,” the California Retailers Assn. trade group said. “Their actions will continue to harm our schools, police, fire and the tens of thousands of small businesses who provide jobs and invest in our state every day.”
For its part, Amazon emphasized the jobs issue by saying that the new law has forced it to sever ties to 10,000 affiliates in California who are paid commissions to steer buyers to Amazon’s site by click-through links on their sites.
By cutting off California affiliates, the company hopes to avoid the key criterion — some presence in the state — that would make it subject to collecting sales taxes.
“This referendum effort is a vehicle for affiliate marketers to continue to do business in California, which translates to real income for the state as these businesses pay their income tax, employment tax plus other tax,” said Rebecca Madigan, executive director of Performance Marketing Assn., a trade group for affiliates. Amazon would not comment, instead referring to her statement.
And what are the referendum’s chances attracting the 500,000+ signatures required to get on the ballot? Then, what are the chances of it passing? According to the article, both sides have a strong case:
When it comes to jobs, mega-retailers Wal-Mart Stores Inc., Target Corp. and scores of others can make a stronger argument than Amazon. But experts cautioned not to count out Amazon, as well as consumers’ own greed in wanting to shave taxes of 7.25% or more off their final prices — even though they legally owe that money.
There’s also a terrific exploration of how—and why—online sales are growing and sales tax revenue is shrinking.
We hope that the voters of California don’t get tricked into thinking the referendum would actually repeal the sales tax itself. Regardless of the outcome, the sales tax will still be owed by the consumers, just as it has been in California since 1935 (no, that is not a typo).
The article is definitely worth reading—go check it out for yourself.
Leave a Comment » | Federal Legislation, Issues, State News | Tagged: affiliate nexus legislation, Amazon, California, online sales tax, sales tax, Walmart | Permalink
Posted by FedTax
July 12, 2011
ANOTHER UPDATE (7/12/2011 @ 2 PM EDT): Internet Retailer just published a detailed article about this too.
UPDATE (7/11/2011 @ 10 PM EDT): The Financial Times and The Wall Street Journal just ran an article about this too.
Last Friday, July 8, Amazon filed a petition for a referendum on California’s recently passed affiliate nexus legislation, which requires online companies with California affiliates to collect California sales tax. The referendum would put the decision on whether to enact the legislation in the hands of California voters.
This AP article has more, although details are yet to come.
To be clear: The referendum would not give voters the opportunity to determine whether or not sales tax is due on online purchases. Sales tax has always been due on online purchases and it still is; the California legislation simply changed how it is collected. Before, consumers were responsible for sending the tax due directly to the state. With the legislation, online retailers themselves—at least, those with California affiliates—are responsible for collecting and remitting the tax.
As we’ve always said, federal legislation is the better solution—it allows states to collect existing sales tax without hurting affiliates or targeting online retailers that use affiliates. When Congress finally acts to pass federal legislation, state legislation won’t be necessary, and online retailers will be free to resume their affiliate relationships without fear of a discriminatory tax collection law singling them out.
Amazon supports federal legislation, as do we. We hope that it will be enacted soon, ending the feud over California’s legislation.
8 Comments | Federal Legislation, State News | Tagged: affiliate nexus legislation, affiliate tax, Amazon, amazon affiliates tax, California, Internet Sales Tax, online sales tax, sales tax | Permalink
Posted by FedTax
July 7, 2011
Bay Area BizTalk: Amazon Tax
In a Bay Area BizTalk post on the San Francisco Business Times website, Macy’s vice president and tax counsel Frank Julian voices his support for the Streamlined Sales and Use Tax Agreement (without mentioning it by name) and federal legislation on online sales tax:
“The state-by-state approach we think is the wrong way to address this…. It doesn’t bring about the simplification and uniformity we think is critical,” said Frank Julian, vice president and tax counsel at Macy’s Inc. “We would support congressional legislation that brings about simplification, uniformity and vendor compensation in exchange for making all sellers collect tax, but it has to do all of that. It has to be a package. You can’t take one side of the equation without the other.”
Make no mistake, Macy’s and most small retailers who now count Amazon as competition want the giant online retailers to pay sales tax — it’s only fair and levels the playing field, they say. But to work and to be constitutional, it must be done through federal legislation, and it must at the same time make it easier and more economical to collect sales tax.
We couldn’t agree more. And Amazon CEO Jeff Bezos has said much the same thing.
The article also includes a good illustration of why streamlining and simplification is so desperately needed:
Consider that every city and county in California has a different tax rate. Then consider that in some states a Snickers is considered — and thus taxed as — a candy bar while a Nestle Crunch bar is not considered candy because it contains rice. Some states tax fruit juices differently based on just how much fruit is in the drink, and not all states tax clothing.
The Streamlined Sales and Use Tax Agreement (SSUTA) eliminates all that complexity and makes it much easier for retailers to collect sales tax for multiple states. Federal legislation, in the form of the Main Street Fairness Act, would provide an incentive for states to join SSUTA and ease the burden on retailers.
The rest of the article is also worth reading for its analysis of what online sales tax collection means for both big box retailers and mom-and-pop stores; we highly suggest you check it out.
We do have to disagree with one conclusion the article draws: that collecting sales tax for multiple states is too difficult for small online retailers.
Yes, we need the simplification provided by SSUTA. But for small online retailers worried about the potential costs of collecting sales tax, we have just one word: TaxCloud.
We created TaxCloud especially for those small retailers without the resources of an Amazon or Walmart who are faced with collecting sales tax and wondering how they can do it. We’ve made it easy and, perhaps even more important, we’ve made it completely free.
Once again, we have to hope that Congress hears this voice of support for Streamlined and federal legislation. The recent passage of affiliate nexus legislation in California has brought the issue to the forefront of the national conversation. It’s time for Congress to listen to that conversation and finally take action.
Leave a Comment » | Federal Legislation, Issues | Tagged: affiliate nexus legislation, Amazon, California, Internet Sales Tax, Main Street Fairness, online sales tax, sales tax, SST, SSTP, SSUTA, streamlined sales tax, TaxCloud | Permalink
Posted by FedTax
July 5, 2011
SFGate: What's next for California sales tax collection
A new column on SFGate.com, the San Francisco Chronicle website, speculates on what’s next for online retailers and state legislators now that California has passed affiliate nexus legislation.
The author points out that neither Amazon nor Overstock—both of which immediately dropped their California affiliates upon the bill’s passage—are currently collecting California sales tax, even though the new law has gone into effect. How will the state respond? According to Betty Yee, a member of California’s Board of Equalization:
“So, we’ll bill them at the end of this quarter, based on estimates either they provide or we come up from other data sources. Then, if they don’t come forward and pay, we’ll consider other courses of action.”
It seems pretty unlikely that they’ll “come forward and pay,” and according to the article, litigation is likely the next step. In fact, Amazon is currently in the middle of a lawsuit challenging New York’s affiliate nexus law—which has, thus far, been upheld.
One could argue, of course, that because they’ve dropped their California affiliates, Amazon and Overstock no longer have nexus in the state. However, Amazon, at least, has subsidiaries with offices in the state, such as Lab126 in Cupertino, which designed the Kindle. Under the California law, those subsidiary locations may be sufficient to establish nexus for Amazon—a matter that now seems destined to be determined by the courts.
Unless, that is, federal legislation renders the question moot. Our favorite part of the column is the section with the header, “Over to you, D.C.” We’ve long argued that federal legislation is the best solution for both states and retailers, and we’re happy to see that on that, at least, everyone seems to agree:
If there’s one thing both sides of the online tax fight appear to agree on, it’s the need for the feds to step in.
“What we’re trying to do is to get Washington to clarify nexus, and revise the Quill decision,” said [Bill] Dombrowski, [president of the California Retailers Association] who is also a board member of the National Retail Federation.
“The right way to fix this is with federal legislation,” Amazon CEO Jeff Bezos said in an interview with Consumer Reports in May. Bezos said his company has long favored an across-the-board “streamlined sales tax initiative,” an idea offered up a decade ago by the National Governors Association, and which 24 states (not, as yet, including California or New York) have signed on to.
The column discusses the Main Street Fairness Act specifically, although we think the description is a bit misleading:
Under Durbin’s bill, “all businesses must collect state sales tax on all purchases, whether or not the business has a physical presence in that state … but based on where the buyer is located,” he said, announcing the proposed legislation earlier this year.
What that brief description doesn’t mention:
- The bill doesn’t allow every state to require out-of-state businesses to collect sales tax—just those states that have made it easy for businesses to collect their applicable sales tax by adopting the Streamlined Sales and Use Tax Agreement (SSUTA) guidelines.
- The bill lets states decide on their own whether to join SSUTA in order to gain the authority to compel out-of-state retailers to collect their sales tax.
But that aside, the column offers a good overview of the current situation in both California and the nation at large. We can’t include here all the details it includes on the response to California’s new law, so we suggest you go read the entire thing yourself.
Leave a Comment » | Federal Legislation, Issues | Tagged: affiliate nexus legislation, affiliate tax, Amazon, amazon affiliates tax, California, Internet Sales Tax, Main Street Fairness, online sales tax, sales tax, SST, SSTP, SSUTA, streamlined sales tax | Permalink
Posted by FedTax
June 30, 2011
Yesterday California passed legislation requiring any out-of-state retailer with an affiliate in California (or warehouse/drop-shipper, or any other physical or economic presence) to collect California’s sales tax. It’s the seventh state to enact affiliate nexus legislation, after New York, North Carolina, Rhode Island, Connecticut, Illinois, and Arkansas.
This is a signficant move, but unfortunately it’s the wrong one. As a result of this legislation, affiliates face either losing their income or moving out of the state. In fact, in less than 24 hours, Amazon and Overstock have already ended their affiliate programs in California, just as they did in the other states when they passed similar legislation.
A better option is still available for California by simply joining the Streamlined Sales and Use Tax Agreement and urging Congress to enact federal legislation such as the much anticipated the Main Street Fairness Act (or MSFA). Enactment of the MSFA will enable the states to repeal affiliate nexus laws, and in so doing, restore a significant revenue source for many of their smallest businesses, while also gaining the legitimate authority to collect significantly more revenue.
So, the good news is that as the eighth largest economy in the world, California attracts a lot of attention. There’s a reason for the saying “As goes California, so goes the nation.” Congress cannot possibly ignore the message that California is sending: states want and need federal legislation allowing them to require out-of-state retailers to collect sales tax.
But if anyone in Congress is still wondering if this is matters in their district, here is a small portion of the local news websites that have published the news that Amazon has dropped its California affiliates (not including California sites):
We are confident that with California’s bold statement, Congress will acknowledge the unmistakable THUD heard ’round the country yesterday. California’s legislation is just the latest plea from states that federal legislation regarding online sales tax collection is absolutely necessary. It’s time for Congress to act.
11 Comments | Federal Legislation, Issues, State News | Tagged: affiliate nexus legislation, affiliate tax, Amazon, amazon affiliates tax, California, Internet Sales Tax, Main Street Fairness, online sales tax, sales tax, SST, SSTP, SSUTA, streamlined sales tax | Permalink
Posted by FedTax
June 27, 2011
According to Internet Retailer and the Austin-American Statesman, Amazon’s Paul Misener, Vice President of Global Public Policy, has sent a letter to Texas legislators asking that Amazon be exempt from a provision in Texas’ budget bill that says any retailer with a distribution or fulfillment center in Texas must collect sales tax from Texas customers. (The Statesman article includes a link to the letter itself, which we have provided here.) In return, the letter suggests, Amazon could create 6,000 jobs in Texas:
I am writing to request your support for a safe harbor provision in the budget bill that would allow Amazon fulfillment and customer service affiliates to bring Texas at least 6,000 new full time jobs with comprehensive health care and other benefits, as well as at least $300 million in capital investment.
This is an increase from Amazon’s previous offer of 5,000 jobs. In the end, the letter says, Amazon could generate over 10,000 new jobs in Texas:
South Carolina recently enacted a nearly identical law that will bring at least 2,000 jobs and $125 million to that state, where officials estimate that the number of indirect jobs created will be at least as great as the number of direct jobs. By the same calculus, Texas stands to gain well over 10,000 new jobs.
You can find more about the Texas debate over Amazon and sales tax here.
Interestingly—and this part isn’t mentioned in either article—Amazon’s exemption would end upon the enactment of federal legislation on sales tax collection:
This safe harbor provision would serve as a time-limited exception to the new tax nexus language already included in the budget bill, and would expire immediately upon the effective date of a federal law on state sales tax collection. (emphasis added)
The South Carolina deal contained a similar provision. The state’s Senate Bill 36, which automatically became law a week ago without the governor’s signature and which amended South Carolina’s tax code to include the terms of the deal with Amazon, says that the deal will not apply upon
the effective date of a law enacted by the United State Congress that allows a state to require that its sales tax be collected and remitted even if the taxpayer does not have substantial nexus with that state.
(If you click the above link to look at the bill, scroll down to section 3 for the language regarding the deal with Amazon; the provision about federal legislation is at section 3, paragraph D, line 3.)
Amazon has long said that it supports federal legislation on online sales tax collection, and we’re thrilled to see that it’s, if you’ll forgive the cliche, “putting its money where its mouth is.”
While states and retailers remain at loggerheads over state sales tax collection laws, it’s remarkable that they agree on thing: the need for federal legislation. Congress, are you listening?
Leave a Comment » | Federal Legislation, Issues, State News | Tagged: Amazon, Internet Sales Tax, online sales tax, sales tax, Texas | Permalink
Posted by FedTax
June 10, 2011
Statesman.com: Texas House breaks with Perry
According to this article from the Austin American-Statesman (TX) and this press release from Texas Governor Rick Perry, it seems the Texas House of Representatives is at odds with the governor over provisions that would clarify what constitutes a retailer’s “physical presence” in the state. Retailers with a physical presence in the state are required by law to collect Texas sales tax.
The debate began last September, when Texas comptroller Susan Combs “sent Amazon a notice that it owed $269 million in sales taxes it failed to collect from 2005 to 2009. She noted that Amazon had a distribution center in Irving.” In response, Amazon threatened to close the distribution center, which would eliminate 119 jobs, and dropped plans for expansion that would have created 1,000 jobs.
The proposed provisions, which have now been added to Senate Bill 1, the omnibus fiscal matters bill, makes it clear that a distribution center does qualify as a physical presence. The Texas House and Senate already passed a bill (HB 2403) containing this language, but it was vetoed by Gov. Perry less than two weeks ago. The House passed the bill on fiscal matters with the provision intact on Thursday.
Interestingly, both the governor and supporters of the provision claim to be acting to support jobs. Said Ronnie Volkening, president and CEO of the Texas Retailers Association:
“We’re disappointed that the governor does not seem to appreciate the negative impact on job creation that continuing a sales tax structure that is discriminatory against Texas retailers can have.”
In turn, the governor issued a statement saying, in part:
I believe this provision risks significant unintended consequences, including a loss of Texas job opportunities and weakening of our state’s competitive advantage.
Actually, we believe that both of them have a point. And even better, we have a solution.
Mr. Volkening is right that allowing online retailers to avoid collecting sales tax hurts local retailers. And since local retailers supply local jobs, hurting local retailers ultimately means fewer jobs. But Gov. Perry is also right to be concerned that Amazon’s closing the distribution center will cause a loss of jobs.
But the problem isn’t with online sales tax. The problem is that there is no federal legislation regarding online sales tax, which Amazon CEO Jeff Bezos has publicly supported many times. Without federal legislation, individual states are creating a multitude of laws that end up targeting particular retailers and make it more difficult for all retailers (online and offline) to collect sales tax for multiple states.
What we need is the Main Street Fairness Act, which would allow states that have made it easier for retailers to collect sales tax (by joining the Streamlined Sales and Use Tax Agreement) to require online retailers to collect sales tax.
When such federal legislation is passed, it will make sales tax collection rules consistent in every state, and states won’t need to worry about warehouses closing and eliminating jobs, and local retailers won’t need to worry that online retailers have an automatic price advantage because they don’t have to collect sales tax.
Don’t get us wrong—there will still be competition. States will still need to offer a business-friendly climate to attract companies, and retailers will still need to offer competitive prices. But that competition will finally be on a level playing field.
2 Comments | Federal Legislation, State News | Tagged: Amazon, Internet Sales Tax, Main Street Fairness, online sales tax, SST, SSTP, SSUTA, streamlined sales tax, Texas | Permalink
Posted by FedTax
June 8, 2011
Seattle Times: Amazon tells shareholders it will stand firm on sales taxes
According to an article in the Seattle Times, at a shareholder meeting on Tuesday Amazon CEO Jeff Bezos expressed support for the Main Street Fairness Act (without mentioning it by name):
Bezos reiterated his support of federal efforts to minimize the many differences among states on sales-tax collection from Internet retailers. Asked by one shareholder to look ahead 10 years, Bezos said, “I believe we’ll have the simplified sales-tax initiative passed.”
“I hope it might happen much sooner than that,” he added. “It’s the right thing to do, and I think it would be great for Amazon.”
However, he reiterated that Amazon is opposed to state-by-state legislation attempting to require online retailers to collect sales tax.
One clarification: It may be difficult to understand from the article that sales tax is already due on online sales. Currently the consumer is required to send the tax due directly to the state if the retailer doesn’t collect it.
The Main Street Fairness Act would allow states that have adopted sales tax simplification measures (thus making it easy for retailers to collect sales tax for multiple states) to require online retailers to collect sales tax.
2 Comments | Uncategorized | Tagged: Amazon, Internet Sales Tax, Main Street Fairness, online sales tax, sales tax, streamlined sales tax | Permalink
Posted by FedTax
June 3, 2011
Businessweek: Amazon may soon have to collect sales tax
A terrific article in Bloomberg Businessweek offers an insightful analysis of the state of online sales tax and ultimately reaches a surprising conclusion.
The article quotes Senator Dick Durbin,who plans to introduce the Main Street Fairness Act, on why the time is right for this legislation:
“This idea is overdue,” he says. “Online retail sales are now very fulsome and are growing at the expense of local units of government.” Many state budgets are bleeding red, despite some recent revenue upswings around the country . . . A University of Tennessee study recently estimated that states will collectively lose $10.1 billion in uncollected online sales-tax revenue this year and $11.3 billion next year.
But the real meat of the article comes at the end, when they look at what collecting sales tax would mean for Amazon, the largest of the online-only retailers:
Actually, being forced to collect sales tax may not turn out to be so bad for Amazon. Analysts at Wells Fargo Securities (WFC) recently surveyed a range of products and found that even without factoring in sales tax, Amazon’s prices were, on average, 5 to 6 percent lower than Wal-Mart’s and 12 to 13 percent below Target’s. And without having to worry about sales-tax consequences, Amazon will be able to freely add shipping centers near every major city and accelerate its push toward delivering products overnight, or even on the day they’re ordered. (emphasis added)
As our regular readers know, technology has reached the point that collecting sales tax isn’t a burden for online sellers. But it was fascinating to read that Amazon not only wouldn’t be hurt by collecting sales tax, it might even do better.
The entire article is worth a read for its incisive analysis.
3 Comments | Issues, State News | Tagged: Amazon, Internet Sales Tax, Main Street Fairness, online sales tax, sales tax | Permalink
Posted by FedTax
June 2, 2011
Earlier today the California Assembly passed AB 153, the so-called “affiliate nexus” legislation. This development comes on the immediate heels of the Assembly’s approval yesterday of AB 155.
To review:
AB 153 would require any out-of-state retailer to collect California sales tax if that retailer pays click-through commissions to any California business in excess of $10,000 $500,000 annually (note: revised upward 3 days ago). AB 153, if approved by the State Senate and signed by Governor Brown, will mandate that any website link advertisement (where compensation is paid if a sale is completed) is the legal equivalent to a door-to-door salesperson—invoking the sales tax collection obligation provisions of the Supreme Court’s 1992 Quill decision.
As many of our regular readers know, many web-based businesses regularly display commission-bearing advertisements on their websites. Perhaps more troubling than the typical “Amazon.com” affiliate relationships that have been in the news so much lately, consider the possible impact of this legislation on California companies, such as eBay. EBay’s entire business is based upon receiving a commission upon completed sales. If AB 153 becomes law, potentially every eBay seller could be required to collect California sales tax if they sell (or even market) any products to just one California resident. We expect this may explain the sudden huge jump in the “occasional sales” exception threshold.
Seriously though?! Is $500,000 annually really an “occasional seller“? That must be one heck of a garage sale!
Meanwhile, AB 155 is now focused entirely on mandating that so-called “sister companies” based in California establish sufficient nexus for out-of-state “parent” or “sibling” companies to be required to collect California sales tax. Our regular readers may recall that AB 155 was initially introduced as reporting requirement bill, very similar to Colorado’s legally embroiled reporting requirement law, HB 1193. Fortunately AB 155 has been amended several times since then to eliminate the more troublesome reporting obligations and achieve its new form. Although, as it is worded now, it would seem quite likely to cause affected out-of-state retailers with investments in California businesses to simply withdraw those related entities from the state entirely. While we are sure there are numerous examples of such entities, Lab126 (the developer of the Kindle for Amazon) comes immediately to mind.
While we appreciate and respect California’s need to fix the current imbalance related to sales tax collection obligations, which costs the state over $1.1 billion annually, we sincerely hope those entrusted to do the people’s work in Sacramento recognize that this matter must ultimately be resolved in Washington DC.
Under the Supreme Court’s 1967 National Bellas Hess vs. Illinois Department of Revenue ruling, the ability of states to compel remote or out-of-state businesses to collect local sales tax hinges on minimizing (or eliminating) burdens implied by such an obligation. In its majority opinion (now forty-four years ago), the Court ruled that
the many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle National’s interstate business in a virtual welter of complicated obligations to local jurisdictions.
So, unless and until California directly addresses these three points of undue burden, attempts to compel remote retailers to collect will not likely survive litigation and judicial review.
Fortunately, California has been working with 43 other states on the Streamlined Sales and Use Tax Agreement since 2000 —a system that alleviates all of these burdens (and is FREE for retailers to implement). Governor Brown and the California legislature should urge California’s delegation in Congress to sponsor and work to pass the federal Main Street Fairness Act, which would eliminate the need for California to venture into such controversial interpretations and extensions of the concepts of nexus and would finally enable California to require out-of-state retailers to collect sales tax, just as any local retailer is required to do.
2 Comments | Federal Legislation, Issues, State News | Tagged: affiliate nexus legislation, affiliate tax, Amazon, Colorado, eBay, Internet Sales Tax, Main Street Fairness, streamlined sales tax, TaxCloud | Permalink
Posted by FedTax
May 31, 2011
Massachusetts is considering two bills, one from the House and one from the Senate, that would require online retailers with Massachusetts affiliates to collect sales tax.
According to this article in the Cape Cod Times, a University of Tennessee study puts Massachusetts’ annual sales tax losses at $11.4 billion by 2012. The same article states that the senator sponsoring the bill, Senator Steven A. Tolman, hopes to recover that money in order to fund services that have been cut due to the recession:
Tolman said the tax money is needed to invest in state programs that had to be cut in the recession.
“In these times of tight state budgets and the reduction or elimination of many state-funded programs, Massachusetts can no longer afford to subsidize Internet and catalogue retailers by not collecting sales tax on purchases made by residents of Massachusetts,” Tolman wrote in an email.
Tolman said what essentially are tax-free sales gives online vendors an unfair advantage over bricks-and-mortar stores.
“The current law penalizes Massachusetts’ main street retailers and gives those without a physical presence in Massachusetts a 6.25 percent head start,” he said.
Michael Mazerov, an official from the Center on Budget and Policy Priorities, also commented on states’ need for sales tax revenue:
“State and local governments are losing billions of dollars a year in revenue that they need to provide education, health care, police protection and a whole other range of services,” he said.
Mazerov said the government is already entitled to this tax money; its absence has added to state budget woes.
“Particularly now, with the downturn of a depressed economy, local governments are losing lots of revenue that they’re legally entitled to receive,” he said. “These are not new taxes. We are talking about collecting sales tax on things that are taxable if you buy it in the store.”
Both Tolman and Mazerov make good points, and we agree that online retailers should collect sales tax, just as local retailers do. However, we don’t believe that bills like these, which target online retailers that use affiliate marketers, are the best solution.
When other states have passed these kinds of affiliate nexus laws, online retailers have responded by simply ending their affiliate relationships in the state. These laws end up hurting small businesses in the state that rely on affiliate marketing income and do not bring in any additional sales tax revenue.
A better solution is the Streamlined Sales and Use Tax Agreement (SSUTA) and the federal Main Street Fairness Act. States that join SSUTA implement its sales tax guidelines to make collecting sales tax for more than one state easy for retailers. The Main Street Fairness Act would, in turn, allow SSUTA member states to require online retailers to collect sales tax.
It makes sense: Only those states that have made it easy for online retailers to collect sales tax would be allowed to require online retailers to do so, and retailers with affiliates wouldn’t be singled out.
Everyone would play by the same rules. And isn’t that the best solution for everyone?
1 Comment | Federal Legislation, Issues, State News | Tagged: affiliate nexus legislation, affiliate tax, Amazon, Internet Sales Tax, Main Street Fairness, Massachusetts, Michael Mazerov, online sales tax, sales tax, SST, SSTP, SSUTA, streamlined sales tax | Permalink
Posted by FedTax
May 12, 2011
Speaking at Consumer Report’s ShopSmart Shopping Summit, Jeff Bezos, CEO of Amazon.com (NASDAQ: AMZN), spoke out in support of federal online sales tax legislation:
Our point of view on this is that we should simplify the sales tax system, and we’ve been consistent on this for probably ten years—it’s called the Streamlined Sales Tax initiative, I think 22 or 23 states have signed on to it. Because the right place to fix this is with federal legislation. That’s where it can be fixed properly. The sales tax collection is very complicated, and you know, we’re no different from, you know, big chains of retailers – they don’t collect sales tax in states where they don’t have nexus, either. (emphasis added)
The complete video of his statements is available here.
Although he doesn’t mention it by name, the Main Street Fairness Act is the federal legislation Mr. Bezos wants to see enacted. It would allow states that have complied with the simplification procedures of the Streamlined Sales and Use Tax Agreement to require online retailers to collect sales tax.
We’re thrilled to see Mr. Bezos and Amazon.com publicly acknowledge the need for the Main Street Fairness Act, and we hope Congress is listening.
3 Comments | Federal Legislation, State News | Tagged: Amazon, Internet Sales Tax, Main Street Fairness, online sales tax | Permalink
Posted by FedTax
April 15, 2011
Forbes
This Forbes column by Robert W. Wood presents a terrific summary of the history of online sales tax and the issues involved. We particularly like how it defines and illustrates “use tax,” but the entire article—which is brief—deserves a read.
The only thing we’d also have liked to see is a definition of affiliate nexus legislation. Although Wood does mention Amazon at the end, he doesn’t explain that states are increasingly passing laws that say having affiliate marketers in a state is enough to create nexus there, and that this is what Amazon objects to.
We’re looking forward to the day when there is federal legislation allowing states to require online retailers to collect sales tax—something Amazon has said it would not object to, since it treats all retailers the sames, whether they are online or off and whether or not they use affiliate marketers.
Leave a Comment » | Issues, State News | Tagged: affiliate nexus legislation, affiliate tax, Amazon, amazon affiliates tax, Internet Sales Tax, Main Street Fairness, online sales tax | Permalink
Posted by FedTax
