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


Lots of errors in Orange Country Register editorial

April 21, 2011
Editorial: New Durbin bill targets e-commerce

Editorial: New Durbin bill targets e-commerce

A recent editorial in the Orange County (CA) Register combines in one place nearly every misconception and outright error we’ve heard about the Main Street Fairness Act.

Let’s start with one we often see: “It raises taxes.” This is unequivocally wrong. The Main Street Fairness Act would not create a new tax or raise current taxes. Sales tax is already due on online purchases; it’s just not necessarily collected by the retailer at the point of purchase. If it’s not, consumers are required by law to send the tax directly to the state. Few do, but that doesn’t change the fact that they are supposed to. By allowing states to require online retailers to collect sales tax, the Main Street Fairness Act would simply shift the remitting requirement from consumers to retailers.

Here’s another one:

We believe that taxes should have a reasonable connection to the government benefits they support. While out-of-state retailers don’t charge sales taxes, they also don’t reap any of the benefits from another state’s government. Out-of-state businesses never contribute to the wear-and-tear on state highways, public safety needs, or other basic infrastructure costs.

We also believe that taxes should “have a reasonable connection to the government benefits they support.” Which is why sales taxes, paid by the consumer, go to fund vital services in the consumer’s community, such as police, firefighters, schools, libraries, parks, road maintenance, and more. The out-of-state retailer doesn’t benefit from these services in other communities, but they also don’t pay for them. Online sales tax is destination-based, which means that the sales tax the shopper pays always goes to the shopper’s state and community. Out-of-state retailers don’t contribute anything to other states’ governments and communities, and the Main Street Fairness Act wouldn’t change that.

Then there’s this: “It would be nearly impossible for online businesses to comply with the nation’s patchwork of sales tax laws.” That’s hogwash! Calculating the sales tax due on a purchase is no more difficult than calculating shipping costs in real time, something nearly every online retailer does. With today’s technology, it’s not a problem for online retailers to collect sales tax for every tax jurisdiction in the country. The editorial says that “no business could keep track of every jurisdiction’s fluctuating rates and regulations.” That may have been true at one point, but it’s not true any longer—in fact, our company was founded specifically to solve that problem. Our TaxCloud service, which is available for free, automates all the work associated with collecting sales tax for retailers of any size, even sole proprietorships. We’re doing everything we can to shout from the mountaintops that collecting sales tax online is easy.

The editorial also creates an impression of the Streamlined Sales Tax Governing Board as a shadowy group of taxmen who want to overthrow the country’s tax rules in order to raise taxes. This is ridiculous, and nothing could be further from the truth. The entire purpose of the Streamlined Sales and Use Tax Agreement (SSUTA) is to make collecting sales tax easier for retailers.

The SSUTA is the result of over 10 years of work by 44 states, the business community, and local governments with the goal of reducing the costs and administrative burdens of collecting sales tax for retailers and governments alike. It does this by simplifying common tax definitions (so that the category “candy,” for instance, means the same thing in every state), standardizing reporting procedures so that retailers don’t have to submit different tax returns to each state, and standardizing critical sales tax data (e.g., sales tax rates, tax base definitions, and jurisdictional boundary definitions) so they can be consistently and systematically applied in all states. All this is designed to make it easy for out-of-state retailers to comply with local sales tax laws and collect sales tax for multiple states.

Please note, because this is important: The Streamlined Sales Tax Governing Board does not have the power to raise taxes. States that are members of SSUTA still set their own tax rates through their elected representatives.

The governing board is composed entirely of state officials—elected representatives or appointed officials—four from each SSUTA member state. You can read more about who serves on the governing board here; in fact, the entire agreement that states sign on to when they join SSUTA is available on the Streamlined Sales Tax website, along with a large library of other documents. Plus, any member of the public can attend the meetings of the governing board. It’s hard to imagine how the governing board could have made their organization more open and transparent.

And let’s not forget, no one is forcing states to join SSUTA. Each state decides on its own, through its normal legislative process, whether or not to adopt SSUTA guidelines and join SSUTA. Enactment of the Main Street Fairness Act will not change that.

The editorial ends with this completely untrue statement: “It’s true that online businesses reduce consumers’ sales tax burdens.” Actually, as long as online retailers don’t collect sales tax, they’re increasing consumers’ sales tax burdens. Just because they don’t collect sales tax doesn’t mean sales tax isn’t due—as we said earlier, it is, and when the retailer doesn’t collect it the law requires the consumer to send it directly to the state. We think it imposes a burden on consumers to require them to keep track of their online purchases, calculate the sales tax due on them, and add that amount to their annual tax returns. If online retailers collect sales tax, consumers have to do none of that.

But it’s primarily two groups that are being hurt most by the current situation: local retailers, who do have to collect sales tax and who are losing the fight to compete with online retailers, and local communities, which are suffering massive cuts to vital services because the proceeds from voter-approved sales taxes are rapidly evaporating as more and more retail commerce moves online.

Last year, California lost at least $1.4 billion in unpaid sales tax on online purchases. That’s $1.4 billion that the state should have received and did not, simply because online retailers chose to not collect it.

Would the collection of online sales tax solve all of California’s money woes? No, of course not. Would it be a huge help? Absolutely.

The Orange Country Register itself has written extensively on the local effects of service cuts due to lack of funds: “Money troubles cut into firefighting resources“; “County transit slashes bus service, cuts 400 jobs“; “OC health providers brace for state cuts“; “County’s Health Care Agency slashes services“; “Governor’s cut to housing assistance hits local seniors“; “O.C. law enforcement criticizes proposed early release of prisoners“; “O.C. lays off 210 county workers“; “Local schools brace for more cuts after proposition fails“; “O.C. officials worried about prison cuts.”

Times are tough. Collecting online sales tax can make things a little easier, without creating a new tax or raising taxes.


The Atlantic: “Why aren’t more states pursuing online sales tax?”

April 6, 2011

An article in The Atlantic asks a great question: “Why aren’t more states pursuing online sales tax?”

The article discusses the reasons that states should (and, in all likelihood, do) want to pursue online taxes: the severity of state budget crises, the amount of money online sales tax should bring in. (The Atlantic estimates the total amount of uncollected sales tax to be about $7 billion; as they say, “This isn’t going to solve all of [states'] budgetary problems, but it certainly would help.”)

Then they focus on what they see as the primary obstacle to collecting sales tax online: logistics.

Now think about Internet sales. Online shops are located across the world. An online retailer can sell an item in any state. It would have to have every state’s sales tax built into its website’s framework to provide customers with the correct after tax total cost for their shopping. And that doesn’t even bring local taxes into account, as some cities require additional sales tax as well. This could get quite complicated.

We’re happy to report that the solution to the logistics problem already exists. It’s called TaxCloud.

TaxCloud is a comprehensive sales tax management service that calculates the sales tax due on any purchase anywhere in the country. It also monitors every tax code and automatically updates any changes, so that retailers using TaxCloud stay in compliance with local tax laws with zero effort. TaxCloud also generates state-by-state monthly reports, files state sales tax returns, handles tax exemptions and audits, and more. (To learn more, visit the TaxCloud website.)

TaxCloud is easy to use and takes just 20 minutes to set up. And, since it’s completely free—there’s no set-up fee, no transaction fee, no fee of any kind—it’s perfect for small retailers that don’t have the resources of Amazon.

Calculating sales tax is no more difficult than calculating shipping rates in real time, something most online retailers do. And with services like TaxCloud available for free, we can’t imagine that any online retailer would find it difficult or costly to collect sales tax.


Boston Globe: “Abolish unfair sales-tax break from online retailers”

April 5, 2011
The Boston Globe

The Boston Globe

The Boston Globe has joined the long list of news outlets—the Chicago Tribune, Los Angeles Times, New York Times, Sacramento Bee, and the Minneapolis Star Tribune—in calling for federal legislation to mandate the collection of online sales tax.

In an editorial published last Friday, the Globe outlined the current online sales tax situation and offered a point-by-point rebuttal of critics’ arguments against online sales tax.

We would like to clarify one point in the article that may cause confusion, however. The article states:

Proponents have argued that online retailers shouldn’t have to collect local taxes because they don’t benefit from the local services that those taxes support.

That argument is invalid for a reason the Globe doesn’t mention: Online sales tax is destination-based, which means that it has everything to do with the consumer’s location and little to do with the retailer’s location. No matter where the online retailer is headquartered, the sales tax consumers pay goes to their respective states.

It’s the consumer, not the retailer, who is key when it comes to sales tax. The consumer is paying the sales tax, which is going to the state or local government where the consumer is located and which helps fund community services there—all the retailer needs to do is collect the sales tax along with the consumer’s payment and pass it on to the government. So if a retailer is selling to people in a certain location, then that retailer needs to be prepared to collect sales tax for that location—just as they need to be able to ship to that location.

The editorial also offers this pointed remark:

Amazon and other big retailers should be able to afford the technology required to track and collect sales taxes across multiple jurisdictions.

However, that technology doesn’t need to cost anything. A free, easy-to-use solution is available for small and large retailers alike in TaxCloud.

With TaxCloud, online retailers don’t need to worry about the cost of “track[ing] and collect[ing] sales taxes across multiple jurisdictions.” With TaxCloud, there is no cost—its comprehensive sales tax management service is absolutely free.

TaxCloud:

  • Calculates sales tax in real time
  • Creates detailed monthly reports for retailers
  • Automatically monitors the tax codes of all 13,000 tax jurisdictions and updates any changes
  • Maintains exemption certificates for retailers
  • Files monthly sales tax returns in the 24 states that are members of the Streamlined Sales and Use Tax Agreement
  • And more!

TaxCloud is making it easy for all online retailers, not just “online juggernauts” like Amazon, to collect sales tax.


The mechanics of online sales tax

March 22, 2011

As the argument that online retailers should collect sales tax has been gaining steam, some people have begun wondering about the mechanics of online sales tax collection. Exactly how would it work? What would an online retailer—especially one smaller than Amazon and big-box retailers—need to do to collect sales tax for all 13,000 tax jurisdictions in the country?

The Streamlined Sales Tax initiative has provided the first part of the answer. It’s worked to reduce the costs and complexities of collecting sales tax for retailers and states alike, particularly for retailers that collect sales tax for multiple states. It does this by creating standard tax categories and definitions that every Streamlined member state must adopt—so that, for instance, a candy apple would be in the tax category “candy” in every member state, instead of being considered candy in one state and fruit in another. The actual tax rate isn’t affected—each state still decides on its own the applicable rate and whether items are taxable or exempt—but the standardization and simplification Streamlined provides means that retailers have a much easier time collecting sales tax for multiple states.

But the simplification that Streamlined provides is only part of the answer. The other part of the answer is technology, which is essential to keep track of the 13,000+ tax codes in the country. Technology providers have stepped in with software and services that provide various levels of sales tax management.

Recognizing the key role technology (and, therefore, technology providers) plays in collecting sales tax online, the Streamlined Sales Tax Governing Board established a certification process whereby technology providers have their systems tested and verified by each of the Streamlined member states. Upon successful completion of this process, these companies earn the title of “Certified Service Provider” (CSP) and are authorized to perform all of the sales tax functions for companies. Due to the logistical complexity of the certification process (it takes about a year of coordinated efforts among all member states to certify a CSP), companies may apply to become CSPs only during a brief application period every other year.

FedTax was designated a CSP on July 1, 2010. We are currently the only CSP that is providing its services at absolutely no cost to merchants.

As a Certified Service Provider, we handle every aspect of sales tax calculation, collection, and remittance for our clients. Our TaxCloud service calculates, in real time, the sales tax due on any transaction. It determines whether an item is tax-exempt, manages entity exemption certificates, and automatically integrates changes and updates to tax codes, rates, and jurisdictions—for every jurisdiction in the nation. Finally, TaxCloud keeps track of all collected sales taxes to be remitted by retailers , generates and files all state-by-state sales tax returns, and remits tax payments to all applicable jurisdictions.

What’s more, TaxCloud is extremely easy for anyone to use. Most retailers are able to set up TaxCloud in less than 20 minutes, and it can be integrated into virtually any accounting or e-commerce shopping cart system.

Because we are a CSP, we take full responsibility for any state audit requests on behalf of our TaxCloud clients. In addition, as a CSP we are compensated by SSUTA-participating states, so we can provide TaxCloud to retailers for free. In short, we’re offering a service that handles all sales tax management obligations for retailers at absolutely no cost.

If you’d like to learn more about TaxCloud, check it out here.


LA Times Editorial Board asks readers: Are you an online tax cheat?

March 22, 2011
Los Angeles Times: Are you an online tax cheat?

Los Angeles Times: Are you an online tax cheat?

This editorial in today’s Los Angeles Times covers all the issues in the ongoing debate over sales tax collection. It starts off by outlining on the debate over the affiliate nexus bill introduced by California representative Nancy Skinner. The editorial recognizes the pitfalls of that legislation: that Amazon and other companies will simply drop affiliate relationships with California websites, which is bad for California businesses in the short term (although it will bring in some of the uncollected sales tax—”about $300 million, a fraction of the estimated $1.7 billion California loses each year.” The writers keep the focus where it needs to be, though—the taxes are due and consumers are supposed to report them, but they don’t. The issue is collection, and the most efficient way to improve collection is to shift responsibility to the retailer.

The editorial effectively neutralizes two arguments often made by online sellers: First, that they are neutral as far as sales tax goes. The LA Times says:

Online retailers assert that they are not trying to exploit an unfair advantage over local companies by letting shoppers believe that no taxes are owed, or colluding with them to avoid taxes. But that argument is balderdash on its face. If the Amazons of the world really wanted shoppers to know that they have to pay taxes, they’d include a statement at e-checkout (upfront, not several asterisks and clicks away) telling them to find out from their state and local authorities about adding up and paying the tax. Most are only too happy to promulgate the notion, wordlessly and falsely, that tax obligations dissolve in cyberspace.

The second argument frequently offered by online sellers is that collecting sales tax is too complex. The LA Times points out that it’s not hard to track rates in some 7,500 jurisdictions across the country; it takes a simple software add-on.”

The only point we at FedTax think needs clarifying is that it doesn’t even take software. With TaxCloud, there is no software or database to install. Instead, the relevant tax data is delivered to the merchant or e-commerce shopping cart over a real-time web services API. TaxCloud can calculate correct local sales tax rates in every U.S. tax jurisdiction and account for the type of merchandise, exemptions, and tax holidays. In addition, because we are a Certified Service Provider under the Streamlined Sales and Use Tax Agreement, we take responsibility for tax filings and remittances on behalf of our retailers, who will also appreciate pass-through indemnification by states regarding the accuracy of our rates.

As the editorial points out, with more online buyers than any other state, California has more to gain in uncollected revenue than any other state. Rep. Skinner’s bill, if it passes, is likely to be only the starting point for California. We hope that support for federal legislation is the next step.


“Amazon’s multi-state sales tax battles are a sideshow to the real national solution…”

March 11, 2011

This article by Curt Woodward, senior editor of Xconomy Seattle, points out that the best long-term solution to the problem of uncollected sales tax is for states to join the Streamlined Sales Tax effort and for the federal government to enact legislation such as the Main Street Fairness Act.

The volley of lawsuits, rhetoric from fired-up tax collectors, and Amazon’s hardball response tactics are certainly entertaining to watch from afar. But any real resolution will almost certainly come from a much more boring, slow-moving effort to get state sales taxes on a common source code, and then change the federal laws.

The article goes on to highlight Washington State’s efforts on behalf of the Streamlined Sales and Use Tax Agreement (SSUTA). In fact, it was Washington’s decision to join SSUTA that spurred FedTax’s founders to create TaxCloud, our free, easy-to-use tax calculation and remittance service.

TaxCloud is the only service designed specifically to comply with SSUTA at a scale that supports all online retailers. TaxCloud is easy for retailers to integrate with their current systems—from sign-up to tax collection takes just 20 minutes.


Joan Wagnon, former Kansas Secretary of Revenue, joins FedTax

March 10, 2011

Leader in Streamlined Sales Tax effort will now champion the company’s TaxCloud service

Seattle, Washington – March 10, 2011 – FedTax, a private company committed to making it easy for online retailers to collect sales tax, today announced the appointment of Joan Wagnon as Executive Vice President. Ms. Wagnon brings more than twenty-five years of experience in government and financial services to the role.

“We are honored to have Joan on our team,” said R. David L. Campbell, Chief Executive Officer. “Joan’s experience as secretary of revenue for the State of Kansas and as president of the Streamlined Sales Tax Governing Board are invaluable assets to FedTax as we roll out TaxCloud, our sales tax management service, nationwide.” Ms. Wagnon has also served as chair of the Multistate Tax Commission and on the board of directors for the Federation of Tax Administrators. She has a long record of distinguished public service; in addition to serving as secretary of revenue for the past eight years, a position she left only a month ago, she was also the mayor of Topeka, Kansas, from 1997 to 2001 and a legislator in the Kansas House of Representatives from 1983 to 1994.

In addition to Ms. Wagnon’s extensive background in state and local government, she was president of the Central National Bank in Topeka from 2001 to 2003 and served on their board of directors until 2009.

Ms. Wagnon’s experience with state and local government is particularly relevant as states throughout the nation are facing record budget shortfalls, due in part to a decline in sales tax revenue as more shoppers buy online and avoid paying sales tax. According to a 2009 study by researchers at the University of Tennessee, this year alone states will lose over $23 billion in uncollected sales tax. Although states cannot currently require out-of-state retailers to collect sales tax, the Main Street Fairness Act, which is expected to be introduced soon in Congress, would change that, thus helping states to recover lost sales tax revenue and close their budget gaps. The bill would also level the playing field between local retailers that have to collect sales tax and online retailers that don’t.

In her work with the Streamlined Sales and Use Tax Agreement (SSUTA), Ms. Wagnon strove to make the collection and administration of sales tax easier and more affordable for states and retailers alike. She is thus a natural fit for FedTax, whose TaxCloud sales tax management service makes collecting sales tax easy for retailers of any size, at no cost to the retailer.

“FedTax represents the logical progression of my career,” Ms. Wagnon said. “I’m happy to continue my work in support of fair and neutral sales tax collection as part of FedTax. And I’m looking forward to continuing to make the case that with technology like TaxCloud, it’s easy for any retailer to collect sales tax online.”

TaxCloud instantly calculates the sales tax rate for any address in the U.S., monitors tax codes, and automatically incorporates any changes—so all TaxCloud retailers maintain compliance with sales tax laws with zero effort. TaxCloud also manages exemption certificates, generates reports, and automatically files state-by-state sales tax returns for retailers, all at no charge to retailers.

“TaxCloud reflects the guiding principles of the Streamlined Sales and Use Tax Agreement —that sales tax collection can be easy for any retailer,” said Ms. Wagnon. “FedTax has created a secure, scalable, elegant solution, and best of all, they’re offering it to retailers for free.”

About FedTax

FedTax is a private company that is committed to making it easy for online retailers to calculate, collect, and remit sales tax. It was founded by technology veterans with extensive experience in the large-scale development, deployment, and support of internet-based services in environments with extremely high transaction volumes and financially sensitive information. The management team has been directly involved in building some of the most recognizable brands in e-commerce, including MasterCard, Google, Microsoft, and Expedia.

FedTax has been designated a Certified Service Provider by the Streamlined Sales Tax Governing Board. The company’s TaxCloud service enables e-commerce retailers to easily calculate and remit sales tax across the country. TaxCloud is free to retailers and can be easily integrated into virtually any accounting or e-commerce shopping cart system.

FedTax is headquartered in Seattle, Washington, and has offices in Norwalk, Connecticut, Issaquah, Washington, and now Topeka, Kansas.

Contact:
Beatrice Vaccaro
The Federal Tax Authority
bvaccaro@FedTax.net
+1 206-452-1686


Notes on Affiliate Nexus Sales Tax Laws

March 10, 2011

As more and more states are looking to sales tax legislation as a way to put money back in depleted coffers, affiliate nexus legislation (the infamous “Amazon tax”) has been gaining ground. While sales tax absolutely should be collected by out-of-state retailers, affiliate nexus legislation is not the best way to reach this goal.

Affiliate nexus legislation is designed to work with the 1967 and 1992 Supreme Court rulings that say retailers need to collect sales tax only in those state where they have “nexus”—a physical presence, such as an office or warehouse, or an economic presence, such as salesperson or distributor. Since 1992, however, online sales have increased dramatically and state sales tax revenue has decreased proportionally. Since the Supreme Court rulings mean online retailers only collect sales tax for states where they have nexus, states decided to expand the definition of what can create nexus to include affiliate marketers, locally based websites that provide marketing for out-of-state merchants.

There are, however, significant drawbacks to affiliate nexus legislation. Perhaps the biggest is its effect on the affiliate marketers themselves. In states that have enacted affiliate nexus legislation, large online retailers such as Amazon.com and Overstock.com have proved themselves more than willing to end their affiliate marketing programs there—resulting in the loss of income for hundreds, if not thousands, of individuals. Indeed, immediately after the Illinois state assembly passed a bill on January 6, 2011, to enact affiliate nexus legislation, Amazon and Overstock informed their Illinois affiliates that they will terminate their affiliate relationships in the state if the bill is signed into law. Governor Quinn signed House Bill 3659 into law this afternoon (March 10, 2011), and as expected, Amazon notified its affiliates that they were terminating relationships with Illinois web sites.

What’s more, Amazon has been fighting affiliate nexus legislation in the courts. The company has been involved in a lawsuit against New York ever since the state enacted affiliate nexus legislation in 2008, and there is no end in sight. A lengthy court battle is bad for everyone, state and retailers alike. And then there’s the fact that when every state has a different approach to sales tax, it becomes harder and harder for businesses to sell across state lines. The patchwork of regulations created by affiliate nexus legislation (in New York, Rhode Island, and North Carolina), reporting and/or disclosure requirements for out-of-state sellers (in Oklahoma and Colorado), and state-initiated lawsuits intended to get out-of-state retailers to pay retroactive sales tax (in Texas and North Carolina) creates complexity for businesses and consumers alike and has a repressive effect on business.

There is a much better solution to the problem of uncollected sales tax online. The Streamlined Sales and Use Tax Agreement is a cooperative effort by forty-four states to simplify and reduce the administrative costs of sales tax collection. As part of its efforts, the SSUTA governing board has been working toward the passage of the Main Street Fairness Act (MSFA), which would authorize states to require out-of-state merchants to collect sales tax. This is a much more elegant, simple, and straightforward solution, and one that has none of the drawbacks of affiliate nexus legislation.

Unlike affiliate nexus legislation, the MSFA would not hurt affiliate marketers or anyone else who makes their living online. Although there has been some concern about the ability of small businesses to collect sales tax in every tax jurisdiction in the nation, sales tax management services are available to do this work with little input from the retailer, and at no cost. There’s no reason that a small retailer can’t collect sales tax for every state—and all affiliate marketing programs would remain unaffected. Plus, federal legislation would eliminate the problem of the patchwork of state legislation intended to deal with the problem and actually make interstate commerce much easier.

The Main Street Fairness Act (MSFA) was introduced in Congress in 2010 but was not voted on. Given the successes of the internet over the last twenty-five years and the pressures of revenue loss on state and local budgets, it is reasonable to expect that in 2011, federal legislators will act to address the issue of sales tax collection by out-of-state retailers. We support states efforts to collect sales tax revenue, and we urge them support the MSFA and join SSUTA.


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