Debunking 3 myths about internet sales tax

March 8, 2013

The reintroduction of the Marketplace Fairness Act has resulted in the reintroduction of myths and half truths about its impact on businesses. In this post, we counter the three main fears about collecting internet sales tax.

Fear: Collecting sales tax is too difficult.

Some point to the fact that, nationwide, there are over 9,600 tax jurisdictions, and they argue that online sales tax collection would be so difficult that online retailers would have to hire additional staff to handle it.

Fact: Fortunately, technology provides an easy answer. Sales tax rates are easily stored and maintained in a database—it doesn’t matter if there is 1 rate or 100,000. Databases easily handle tax exemptions, too, for every location. Everything needed to figure out the correct tax rate is already present during an online sale: the purchaser’s address, the sales price, and the type of item being purchased.

Sales tax management services, which offer retailers an easy way to manage sales tax, have already been integrated with most e-commerce platforms, so starting to collect sales tax can be as easy as checking a box.

The proposed legislation is doing its part, too, to make collecting sales tax easy. It requires that states simplify their sale tax laws before online retailers start collecting, lets retailers file one sales tax return per state, and centralizes the registration process. It also requires states to make available free sales tax software for retailers that can work with all states.

So much for the concern over difficulty; what about cost? Sales tax management services are available at every price point—including free. So collecting sales tax doesn’t need to cost an online retailer anything.

And it’s also worth noting that most online retailers won’t have to collect sales tax at all. Only retailers with over $1 million in annual out-of-state sales will be affected.

Fear: This will give local stores an advantage over online stores.

Fact: Actually, it will correct an artificial advantage that online stores currently have, creating a more level playing field for all retailers.

Right now local stores have to collect sales tax while online stores don’t, which gives online stores the appearance of a price advantage of up to 10%. Even when bricks-and-mortar retailers also sell online, it doesn’t change the basic fact that in their local stores, they have to collect sales tax, while online stores don’t.

If the law doesn’t change to keep up with the way people shop, the logical conclusion is that many businesses will elect to only sell online—which would mean no local shopping. Picture your community without a bookstore, clothing store, or electronics store. That’s not what anyone wants.

Fear: This is a new tax.

Fact: If you live in a state with sales tax, you already owe sales tax on your online purchases. If the retailer doesn’t collect sales tax, the purchaser is supposed to pay the tax due directly to the state. In other words, this isn’t a taxation issue, it’s a collection issue.

Most people don’t know that they owe sales tax when they buy online, and states find it almost impossible to enforce their own sales tax laws online. That’s why the Marketplace Fairness Act is needed: to allow states to enforce their own laws and end the sales tax loophole that favors online retailers over local retailers.


TaxCloud in the news!

October 11, 2012

TaxCloudWe’re happy to report that TaxCloud and FedTax have been in the news quite a bit lately.

An end to the free online tax ride nears: In this ComputerWorld article, TaxCloud user Ken Knezek, owner of Bandals Southwest, talks about how his small company has handled online sales tax

What the end of tax-free online shopping means for small businesses: Our CEO, R. David L. Campbell, was interviewed for this Reuters article on how small businesses will be affected by online sales tax

How you can prepare to collect online sales tax: And in an article in Independent Retailer, David offers some tips for online retailers who are thinking about starting to collect sales tax

It’s great to see so much attention being paid to the practicalities of what online sales tax really means for online retailers. As we move closer to federal legislation on the issue, we hope to see more articles like these!


FedTax Statement Submitted for the Record of the Senate Finance Committee (in support of Marketplace Fairness Act)

April 26, 2012

[Download PDF of FedTax Statement]

Statement Submitted for the Record to

The United States Senate Committee on Finance

Full Committee Hearing

Tax Reform and What It Means for

State and Local Tax and Fiscal Policy

April 25, 2012

 Dirksen Senate Office Building

Washington, DC 20510-6200

Attn:  Editorial and Document Section

Rm. SD-219

Statement submitted by

R. David L. Campbell[i]

Chief Executive Officer

and

Joan Wagnon[ii]

Executive Vice President

The Federal Tax Authority, LLC

162 East Avenue

Norwalk, CT. 06851-5715

Alexander Hamilton wrote in The Federalist in 1788 that “individual States should possess an independent and uncontrollable authority to raise their own revenues for the support of their own wants.”

Today the discussion about state sovereignty over matters of taxation continues unabated. State revenue directors have seen firsthand how the actions of the federal government have affected state and local revenues. Members of Congress are increasingly bombarded by requests for action because state laws are restrictive to business or seen as unfair. There are any numbers of examples where congressional action has been beneficial or harmful to states.

But the issue that has been most devastating to state and local government has resulted from Congressional inaction, rather than action: the failure of Congress to overturn Quill v North Dakota.[iii] 

The Marketplace Fairness Act (MFA), S. 1832, sponsored by a bipartisan group of senators (Enzi, Durbin, Alexander, et. al.) is a good solution to the revenue problems of states, but more importantly, it gives states a better mechanism than they have now to collect the taxes they already levy.[iv]

The MFA also corrects a growing imbalance between groups of retailers. Under the current court ruling, tax is collected on some sales and not on other sales of the exact same items. Why should tax be collected on a book or camera purchased from a local business and not on an identical item purchased from a mail order or internet business?

Remote sales are growing at double digit rates.[v] However, states’ inability to collect sales tax on these sales results in the erosion of the states’ tax bases. Certainly this unfairness is not the hallmark of good tax policy! Congress is creating winners and losers among the retail community by its inaction.

Opponents cite two specific reasons for allowing this unfair situation to continue: a) that remote collection would be overly burdensome and complex, and b) that any systems necessary for remote collection would be prohibitively costly. This testimony will provide technical information for Congress to consider when evaluating those arguments.

I.       The Complexity Argument

Technology has advanced considerably since the 1967 and 1992 Supreme Court rulings that created the current sales tax situation. Even the more recent of these, Quill, occurred before the first graphical browser was invented, before most homes had internet connections, and long before e-commerce forever changed the retail landscape. Today, forty-five years after Bellas Hess and twenty years after Quill, online marketplaces and auction sites easily manage millions of items for sale at any given moment.

Today, keeping track of a few thousand local tax rates and filing requirements is not an insurmountable technical, administrative, or financial burden. TaxCloud, the sales tax management system created by FedTax, proves this point by calculating and collecting sales tax on any purchase for any tax jurisdiction in the United States in less than one second. The service is free to all retailers.

The technologies necessary to create such a system are not new; they are well-established. In fact, they are currently being used throughout e-commerce. They are Application Programming Interfaces and Web Services. An Application Programming Interface (API) allows dissimilar and unrelated systems to communicate with each other using pre-established syntax and structure. Web Services allow APIs to be used for machine-to-machine interactions over the internet. Both are now commonly used in e-commerce—for example, in real-time-shipping, which allows a retailer to provide its customers with accurate, real-time quotes for shipping costs based on at least five variables, including weight, size, delivery speed, origin, and destination. Often customers can even compare shipping costs among multiple shippers.

With APIs, Web Services, and other technological advances of the past twenty years, it is now possible for remote retailers to easily keep track of every state’s tax laws. 

To minimize or completely eliminate the undue burdens cited in Bellas Hess and Quill, more than half of the states with sales tax have worked together for twelve years to create the Streamlined Sales and Use Tax Agreement (SSUTA). These states provide free rates and boundaries databases for all of their respective taxing jurisdictions, and regularly issue updates when rules, rates, or boundaries change. In addition these states also certify and pay for software and service providers to manage sales tax compliance on behalf of retailers.[vi] The Marketplace Fairness Act requires that any states seeking remote collection authority shall comply with SSUTA or provide comparable rates and boundaries information as well as certified software and services that retailers can rely upon to achieve compliance with minimal burden.[vii]

Ironically, those who argue most strenuously that remote collection would be too complex are a few large online businesses that already rely on these same technologies every day, in every transaction. The plain fact is that online retailers operate the largest marketplaces in the world by relying on technology to simplify and automate a host of historically burdensome chores, including payment automation, location-specific marketing, personalized recommendations, and even Duties and Value Added Tax management for foreign governments.

II.        The Costs-of-Compliance or Undue Burden Argument

Opponents also argue that even if technology can solve the technical burden of keeping track of rates, jurisdictions, and filing complexities, such software would be prohibitively costly, particularly for small businesses. TaxCloud is provided to retailers at no cost—so the argument that such software would be prohibitively costly should be flatly disregarded. However, the costs-of-compliance argument also maintains that even if the software is free, businesses will still be burdened with the cost of integrating such software into their existing systems.

This line of argument ignores the reality that all but the very largest retailers rely upon pre-written software and/or online hosted platforms for e-commerce and order management. Retailers rely upon these systems to avoid the costs of developing, managing, and maintaining such systems on their own, costs that are magnified by the changing nature of e-commerce. It is no secret that e-commerce is constantly changing to respond to evolving cyber-crime threats, payments and security industry best-practices, and, yes, legislative requirements. When their retailer clients need to collect sales tax, platform vendors will provide ways for them to do so, embedded within the platforms that retailers already use.

E-commerce platform vendors are intensely competitive and focused; they take pride in not only complying with evolving requirements but often surpassing them, occasionally with stunning results. For example, much of the cloud computing infrastructure now transforming every corner of the technology sector can be traced to several of the largest e-commerce companies adapting to comply with the Sarbanes Oxley Act of 2002. Most platforms already provide basic sales tax management features for their clients. Upon enactment of MFA, these existing systems will quickly be adapted to ensure compliance.

To conclude, modern technology has made it easy for retailers to collect sales tax for any state in the U.S. TaxCloud enables retailers of any size to easily collect sales tax and comply with the provisions of The Marketplace Fairness Act—for free. More information is available at TaxCloud.net.

And in addition to TaxCloud, five other companies are certified by the Streamlined Sales Tax Governing Board and ready to assist when Congress authorizes collection—and no doubt hundreds more will emerge soon after legislation is passed, because the free-market system will provide the incentive for entrepreneurs and innovators to develop these products.

Please don’t wait to enact the Marketplace Fairness Act until all the parts of tax reform are in place. Passing this one bill can be the foundation for future reform as well as provide great benefit to both state and local governments. It also benefits brick and mortar retailers. Creating the same tax collection system for retailers whether they sell online or in a store is only fair.

/R. David L. Campbell/
R. David L. Campbell
Chief Executive Officer
/Joan Wagnon/
Joan Wagnon
Executive Vice President

[Download PDF of FedTax Senate Finance Committee Statement – 4/25/2012]


[i] David Campbell, Chief Executive Officer of The Federal Tax Authority (FedTax), founded the company in 2008. FedTax is a Washington State Limited Liability Company with operations in Washington, Connecticut, and Kansas.  Its management team includes highly experienced professionals who have been directly involved in building some of the most recognizable brands in e-commerce, including MasterCard, Google, WebMD, Microsoft, Expedia, and American Express.

[ii] Joan Wagnon served as Secretary of Revenue in Kansas from 2003 to 2011. She also chaired the Streamlined Sales Tax Governing Board in 2008-9 and the Multistate Tax Commission from 2006 to 2008. She served on the Board of Directors of the Federation of Tax Administrators for 8 years before joining FedTax to work toward the passage of federal legislation granting states’ collection authority over remote sales.

[iii] The notion that out-of-state retailers would find it overly burdensome to keep track of every state’s sales tax rules can be traced directly to the 1967 Supreme Court ruling in National Bellas Hess v. Illinois Department of Revenue. In its majority opinion, the court ruled thatthe 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” (emphasis added).

In 1992, the matter of remote sales tax collection came before the Supreme Court again in Quill v. North Dakota. This time, the court reaffirmed the earlier Bellas Hess decision by a ruling of 8 to 1, primarily on the basis of stare decisis. The ruling went on to state, “[O]ur decision is made easier by the fact that the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”

FedTax frequently cites the earlier Bellas Hess quote because it summarizes the ruling’s basis in complexity and burden, which has rippled forward to the present day and created a tidal wave of unintended consequences. This ruling has shielded all out-of-state retailers from the obligation to collect sales tax, based purely on the notion that it would place too much of a burden on businesses. Perhaps it would have, in 1967. That was the year the floppy disk was invented at IBM.

[iv] States typically depend on voluntary means of collecting from individuals, such as a voluntary line on the income tax form. Audit procedures, which are used for businesses, are ineffective for consumers.

[v] On Cyber Monday (the first Monday after Thanksgiving) in 2011, over $1.2 billion in sales were transacted online. On that day alone, approximately $58 million in sales tax went uncollected.

[vi] FedTax has been designated a Certified Service Provider (CSP) by the Streamlined Sales Tax Governing Board specifically for its TaxCloud service. There are six CSPs and 24 member and associate member states.

[vii] Although “software and services” is not defined in the Marketplace Fairness Act, likely it will include Application Programming Interfaces (APIs), Web Services, rates and boundaries databases, and a process for certifying service providers to process returns accurately under state laws.

[Download PDF of FedTax Senate Finance Committee Statement – 4/25/2012]


Joan Wagnon, FedTax EVP, quoted in Fox News article

October 27, 2011

Fox News: Republicans Go Big With New Tax Structures, but Status Quo Could Stifle Simplicity

Our own Joan Wagnon, Executive Vice President here at FedTax, was quoted in a Fox News article about Republican presidential candidates’ tax proposals.

It’s not the first article she’s been quoted in, of course—Joan’s background in public service includes positions as the secretary of revenue for the state of Kansas, chair of the Multistate Tax Commission, president of the Streamlined Sales Tax Governing Board, and mayor of Topeka. But we’re always happy to see her expertise in tax matters recognized. We trust her opinion without hesitation, and her analysis in the article is once again spot-on.


TaxGirl guest post about Amazon and the Main Street Fairness Act

August 30, 2011
Forbes - TaxGirl Guest Post: Why Amazon Is Doing the Right Thing for Online Sales Tax

Forbes - TaxGirl Guest Post: Why Amazon Is Doing the Right Thing for Online Sales Tax

The infamous TaxGirl (Kelly Phillips Erb), a Forbes contributor, has published our CEO’s article!

Guest Post: Why Amazon Is Doing the Right Thing for Online Sales Tax

Our CEO wrote this opinion piece at the invitation of TaxGirl, for her to publish while on her well-deserved summer vacation.


FedTax Rebuts NetChoice and TechAmerica Misinformation Campaign on Main Street Fairness Act

August 18, 2011
FOR IMMEDIATE RELEASE

FedTax Rebuts NetChoice and TechAmerica Misinformation Campaign on Main Street Fairness Act

New Legislation Will Make Sales Tax Collection Simpler

Seattle, Washington – August 18, 2011 – FedTax has issued a rebuttal to the misinformation and scare tactics being used by NetChoice and TechAmerica in an effort to derail the Main Street Fairness Act, which was introduced on July 29 in the Senate by Senator Dick Durbin (D-IL) and in the House of Representatives by Representative John Conyers (D-MI).

Misinformation
A statement issued on July 29 by NetChoice’s Steve DelBianco inaccurately claims that the cost of collecting sales tax will hurt online retailers and that the Main Street Fairness Act “fails to define safe harbors for small businesses.”

“Both of these claims are simply false,” said Joan Wagnon, FedTax Executive Vice President and former Secretary of Revenue for the state of Kansas. “Free software is available to help retailers comply with the Main Street Fairness Act. And Mr. DelBianco’s statements about nonexistent safe harbors for small business are rubbish.” The Main Street Fairness Act, she explains, incorporates the Streamlined Sales and Use Tax Agreement (SSUTA), which exempts small businesses from collecting sales tax. “Section 609 of SSUTA explicitly defines a small seller exception-any retailer with less than $500,000 a year in remote sales is not obligated to collect sales tax. Furthermore, Section 610 creates a plan to compensate small sellers for any expenses incurred in conforming to SSUTA. Any retailer with less than $5 million a year in remote sales can receive up to $12,240 in reimbursements within the first six months of collection. The states developed the small seller exception and the reimbursement plan specifically to accommodate to the concerns raised by businesses during the public meetings and hearings organized by the SSUTA Governing Board, which Mr. DelBianco attended.”

Scare Tactics
An August 16 letter from TechAmerica incorrectly says that the Main Street Fairness Act “would cede Congressional [sic] power over interstate commerce to the SSUTA Governing Board, a body created by a few states.”

In fact, the Streamlined Sales Tax Project was created by the National Conference of State Legislatures (NCSL), the National Governors Association (NGA), forty-four states, and more than eighty-five businesses. The Governing Board, which is composed entirely of state-appointed representatives, was formed in 2005.

Ms. Wagnon, herself a former president of the Governing Board, explained, “Under the Main Street Fairness Act and SSUTA, states retain complete control of their sales tax systems. All of the states that have voluntarily adopted SSUTA’s guidelines to simplify their sales tax laws have done so with absolute transparency and accountability. And every SSUTA state sends both elected officials and revenue department officials to the Governing Board to express the will and intent of that state’s voters. So in fact, the Main Street Fairness Act protects states’ rights and sovereignty by ensuring they determine their own sales tax rules. The states choose whether or not to adopt SSUTA guidelines, and their representatives make up SSUTA’s governing body.”

TechAmerica insists that keeping track of the nation’s sales tax rates would adversely affect online retailers. But according to David Campbell, FedTax CEO and cofounder, “It’s absurd to say that collecting sales tax would hurt e-commerce companies. The real-time shipping tasks these companies already can do are far more complex than collecting sales tax. For instance, online retailers regularly calculate shipping fees based upon the size and weight of items being purchased, the destination of the purchase, and the desired delivery speed. Calculating, collecting, and remitting sales tax is much easier-especially with services like TaxCloud available at no cost to retailers.”

Simplification Achieved
According to Scott Peterson, executive director of the Streamlined Sales Tax Governing Board, SSUTA’s guidelines are beneficial for businesses. “SSUTA’s provisions have been developed by states and businesses over the past decade to simplify sales tax collection,” he said. “Instead of keeping track of a multitude of state sales tax regulations, for SSUTA member states, retailers only need to follow the guidelines in SSUTA-which means, among other benefits, they’ll only have to use one tax return form for every SSUTA state. And if a business uses a sales tax management service offered by a SSUTA Certified Service Provider, they know the service has been tested and verified by every SSUTA member state.”

Sten Wilson, owner of Point of View Farm, a heritage sheep farm in upstate New York, says that the Main Street Fairness Act will make it easier for businesses to comply with sales tax laws. Wilson and his wife “frequently visit festivals and fairs in other states to sell … livestock, wool, and yarn,” he states. “Upon returning home from each trip, I [used to be] faced with the complex and exhausting task of … filling out all the sales tax return forms.” The Main Street Fairness Act, Wilson says, would change that by providing an incentive for states to simplify and standardize their sales tax laws by adopting SSUTA’s guidelines.

“The combination of . . . technology [like TaxCloud] and SSUTA’s simplification measures ultimately unravels a huge web of entangling forms and paperwork, freeing businesses like mine from bureaucracy, promoting efficiency, and increasing productivity and, most importantly, profitability,” says Wilson. “They make dealing with sales tax much, much easier for small business owners.”

About FedTax
FedTax makes it easy for businesses to calculate, collect, and remit sales tax with its free TaxCloud sales tax management service. It was founded by e-commerce veterans who have extensive experience in large-scale internet services and have been directly involved in building some of the most recognizable brands on the internet, including Google, American Express, Microsoft, and Expedia.

FedTax has been designated a Certified Service Provider by the Streamlined Sales Tax Governing Board. The company’s free TaxCloud service is relied upon by nearly 900 businesses to calculate and remit sales tax across the country. TaxCloud can be easily integrated into most accounting, order management, and e-commerce shopping cart systems.

FedTax is headquartered in Seattle and has offices in Connecticut and Kansas.

FedTax Contact:
Daniela Saunders
SVP Marketing
dsaunders (at ) fedtax.net
+1 203-803-2048

View a PDF of this Press Release


Small businesses call for federal legislation on online sales tax

July 19, 2011
FOR IMMEDIATE RELEASE

Small Businesses Call for Federal Legislation on Online Sales Tax

Anticipated Main Street Fairness Act Will Protect Small Businesses from Ineffective State Laws

Seattle, Washington – July 19, 2011 – FedTax® announced today that it joins its TaxCloud® merchants in urging Congress to enact the Main Street Fairness Act (MSFA). The MSFA will authorize states that have simplified their sales tax systems to require online retailers to collect sales tax. The simplification and standardization of sales tax laws will benefit all retailers, and the MSFA will encourage states to follow through with such simplification.

As states such as California and Illinois enact affiliate nexus legislation (so-called Amazon tax laws) to attempt to collect sales tax due on online purchases, small businesses across the country are being caught in the crossfire. Affiliate marketers are forced to either find entirely new sources of revenue or flee to another state. Meanwhile, online retailers that rely on affiliate marketing are forced to either eliminate their established sales and marketing teams or come into compliance with the new laws.

The better solution is the anticipated Main Street Fairness Act, which incorporates the Streamlined Sales and Use Tax Agreement (SSUTA). SSUTA streamlines and simplifies state sales tax regulations, making it easy for retailers to collect sales tax for multiple states. SSUTA is the cooperative effort of 44 states (including California and Illinois), businesses, political leaders, and industry associations. States that adopt SSUTA have committed to make sales tax collection easier for all retailers, online and offline, large and small.

“The Main Street Fairness Act will protect small businesses across the country from the varied state-by-state efforts that are ineffective and are hurting small businesses. Only Congress has the authority to regulate interstate commerce,” said David Campbell, CEO of FedTax. “Our free TaxCloud service is an easy-to-use system now being relied upon by more than 750 small businesses to manage their local sales tax obligations and fully comply with SSUTA as well as the anticipated federal legislation.”

Sten Wilson, a TaxCloud merchant and owner of Point of View Farm, a small sheep farm in upstate New York, said, “There’s a misconception that the Main Street Fairness Act is bad for small businesses, when it’s absolutely not. I can say from my own experience that without this service, managing sales tax compliance in multiple states used to be very complicated—I’m all for legislation that gives states a reason to make collecting sales tax easier.”

The Main Street Fairness Act would ultimately benefit everyone: large and small businesses alike, both local and online, would find it easier to collect and remit sales tax; affiliate marketers would no longer be threatened by state legislation and retailers that use affiliate marketing would be able to continue doing so; and states would benefit from much-needed revenue that funds vital services, without having to resort to controversial affiliate nexus laws.

About FedTax
FedTax makes it easy for businesses to calculate, collect, and remit sales tax. It was founded by e-commerce veterans with extensive experience in large-scale internet services. The management team has been directly involved in building some of the most recognizable brands on the internet, including Google, American Express, Microsoft, and Expedia.

FedTax has been designated a Certified Service Provider by the Streamlined Sales Tax Governing Board. The company’s free TaxCloud service enables businesses to calculate and remit sales tax across the country. TaxCloud can be easily integrated into most accounting, order management, and e-commerce shopping cart systems.

FedTax is headquartered in Seattle and has offices in Connecticut and Kansas.

FedTax Contact:
Daniela Saunders
SVP Marketing
dsaunders (at ) fedtax.net
+1 203-803-2048

View a PDF of this Press Release


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