North Carolina settles with ACLU

February 10, 2011

The ACLU announced yesterday, February 9, that it had settled its case against the North Carolina Department of Revenue over the customer purchase information released by Amazon in response to a DOR request.  More information is contained in this Daily Tech article.

Amazon itself filed a similar suit against North Carolina. As we blogged about the ruling in that case last October, the decision was not a clear victory for Amazon. The court ruled that North Carolina has the right to ask Amazon for general information about customer purchases, but not for specific purchase information, such as the titles of books bought by an individual.  The court also ruled that North Carolina can pursue Amazon for the sales tax that was justly due to the state.  This statement from Beth Stevenson of the North Carolina Department of Revenue explains the fundamentals of the case:

“The case between the North Carolina Department of Revenue and Amazon has long been twisted into something it is not,” said Beth Stevenson, spokeswoman for the North Carolina Department of Revenue. “Bottom line, this is about fairly collecting the tax that is due to the state of North Carolina and nothing more. The Department has always maintained that we do not need—or wanttitles or similar details about products purchased by Amazon customers. The department voluntarily destroyed the detailed information that Amazon unnecessarily provided and offered them the opportunity to comply with the state tax laws moving forward.

“The lawsuit on this particular issue could have been avoided altogether if not for the aggressive stance Amazon took to avoid compliance with North Carolina’s tax laws. There would have never been an issue of customer privacy if Amazon would simply collect the North Carolina sales tax that others already do.”

It’s not surprising that North Carolina is trying its best to collect the sales tax that is due on those purchases. This article from Storefront Backtalk says that only 6% of North Carolinians took advantage of North Carolina’s eTail sales tax amnesty program last year.

The Streamlined Sales and Use Tax Agreement (SSUTA)—of which North Carolina is a member—in conjunction with federal legislation such as the Main Street Fairness Act, will eliminate the need for states to craft individual strategies to collect the taxes that are already due them.


New Mexico and Mississippi join the list of states considering affiliate nexus legislation

January 25, 2011

New Mexico representative Eleanor Chavez introduced HB 102, affiliate nexus tax legislation, on January 20, 2011. It expands the definition of “engaging in business” in New Mexico as follows:

C. A person with a business with no physical presence in New Mexico is presumed to be engaging in business in New Mexico and has nexus with the state for purposes of due process and interstate commerce if:

(1) that person enters into an agreement with an affiliate physically present in New Mexico, for a commission or other consideration, to directly or indirectly refer potential customers, whether by link or an internet web site or otherwise, to that person; and

(2) the cumulative gross receipts from sales by that person to customers physically present in New Mexico who are referred to that person by all affiliates with an agreement described in this subsection are in excess of ten thousand dollars ($10,000) during the preceding twelve-month period ending on June 30 of any year.

D. The presumption of nexus established in Subsection C of this section may be rebutted by proof that the affiliate made no solicitation in the state that would satisfy the nexus requirements of the United States constitution on behalf of the person presumed to be engaging in business in New Mexico.

In Mississippi, HB 363 was proposed by Representative Jessica Sibley Upshaw. The bill’s description is:  Use tax; provide that person soliciting remote sales through representatives in this state is subject to use tax. Specifically, “A person is presumed to be soliciting or transacting business by an independent contractor, agent, or other representative if the person enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, to the person.”

The list of states considering affiliate nexus tax legislation is growing longer—evidence that, absent federal legislation, states are willing to take matters into their own hands to increase the collection of sales tax due on internet transactions. It also seems that the general level of knowledge about the issues—and about the pros and cons of various approaches—is increasing. Recent editorials in two Chicago newspapers (the Tribune and the State Journal-Register) highlighted the affiliate nexus legislation passed by the Illinois House and Senate—and both pointed out the shortcomings of this type of legislation and the need for a federal solution.


Senator Durbin expresses support for collecting sales tax on internet sales

January 21, 2011

According to this article in the Naperville Sun, Senator Dick Durbin is ready to co-sponsor a bill to address the issue of uncollected sales tax on internet purchases. The article states that at a recent meeting between Durbin and Illinois business people, there was a common interest in working on a uniform tax for internet sales, which owners of traditional brick-and-mortar stores said would level the playing field between their businesses and online competitors.

The article quotes Senator Durbin as saying, “I cannot understand how people can buy so many things over the Internet and have them shipped to Naperville, Illinois, and use your streets, your police, your traffic lights, your fire protection, your curbs and gutters, without paying a penny in sales tax to the city of Naperville.” Illinois, he said, is losing between $150 million and $1 billion in sales tax revenue on out-of-state Internet sales. “You are losing so much revenue in this process that should be coming back to the community.”

The article did not mention the Main Street Fairness Act, but it would be most efficient for Senator Durbin to pick up the ball on this bill, which was introduced into the House last year but was not voted upon. The senator’s public statements on the issue caps off a week of support and discussion at the city, state, and federal levels, as we have been covering here on the FedTax.net blog.


Online and Mail-Order Shopping surges almost 16% in December

January 15, 2011

Yesterday (January 14) the U.S. Census Bureau released advanced estimates for December 2010 retail sales. As we first reported one month ago early indicators at that time were that online and mail-order shopping were expected to experience over 13% growth of 2009 results. Now with data in for December, the picture looks even brighter (for online retailers), indicating 15.7% growth over 2009 data (closely matching Cyber Monday’s 16% growth over 2009 recently reported by by comScore).

The Census Bureau report estimated sales activity for the entire Nonstore segment  (NAICS code 454) at almost $362 billion. This Nonstore segment includes Electronic Shopping and Mail-Order Houses NAICS: 4541, Vending Machine Operators NAICS: 4542, and Direct Selling Establishments NAICS: 4543. Over the last few years, the Electronic Shopping and Mail-Order sub-group accounts for approximately 75% of the combined category, suggesting almost $272 billion in online sales.

For a sense of scale, here is a breakdown by retail sector:

Retail Sector Total 2010
Growth
Total 2010 Total 2009 Dec. 2010
Growth
Dec. 2010 Dec. 2009
Furniture & Home 2.3% $ 91,544 $ 89,485 2.2% $ 9,184 $ 8,986
Electronics & Appliance 2.6% $ 102,699 $ 100,096 1.5% $ 13,441 $ 13,252
Home & Garden 6.3% $ 288,387 $ 271,295 12% $ 22,658 $ 20,228
Health & Personal care 3.8% $ 264,192 $ 254,520 7.2% $ 25,539 $ 23,820
Clothing & Accessories 5.1% $ 219,251 $ 199,097 8.4% $ 30,314 $ 27,955
Sports/Hobbies/Books 5.4% $ 88,154 $ 83,637 8.1% $ 12,725 $ 11,762
General & Department 3% $ 610,704 $ 592,916 3.4% $ 72,887 $ 70,475
Online & Mail-order 13.5% $ 271,373 $ 233,942 15.7% $ 34,519 $ 29,826

This table is interesting for several reasons:

  1. December was much stronger economically than the rest of the year (particularly for Home/Garden and Health/Personal).
  2. Online Retailers are far away the most rapidly growing retail sector
  3. We suspect quite a few1 of the online & mail-order transaction did not collect sales tax at the time of the transaction, even though the consumer(s) are still expected to voluntarily report and remit those sales taxes (as “Use tax”). With so many states in such deep fiscal crisis, expect the 112th Congress to finally address this issue.

As always, we welcome your thoughts!

1 “five-sixths of e-commerce sales are not taxable [at the time of the transaction] under current statutes.” University of Tennessee 2009 E-Commerce Study, Page 8


Connecticut’s new Governor turns his attention to internet sales

December 30, 2010

Recent articles about the budget shortfalls in Connecticut prompted a round of discussion on whether the state should raise the state sales tax rate from 6% to 6.5%.  Since many of us at FedTax.net live and work in Connecticut, we were preparing to send out a letter to Governor Malloy and our state Representatives suggesting there is an easier way to raise money without raising the tax rate. Governor Malloy beat us to the punch by announcing that he has already identified online sales as a challenge that his administration is going to take on.  The Governor was quoted in the Connecticut Mirror as saying: “We can’t afford it,” referring to projected $48.3 million annual loss Connecticut faces from missed taxes on Internet sales.  (The $48.3 billion is from a study by researchers at the University of Tennessee.  In fact this study did not take telephone order or mail order sales into account, so it would be reasonable to expect that much more sales tax is going uncollected through these channels).

In announcing his appointment of Former Lt. Governor Kevin Sullivan as the new commissioner of the Department of Revenue Services, Malloy made it clear that taxing online sales will be a high priority for Sullivan:  “Malloy, who takes office on Jan. 5, said his administration is looking at ways to tax Internet sales, a hot button issue this holiday shopping season.  The state is in dire need of more revenue …and he wants Sullivan to go after those not paying their required taxes.”  (nbcconnecticut.com)

Connecticut is very familiar with the Streamlined sales tax initiative, having participated in the process as an Advisory member state since 2002.  In 2007 Connecticut conducted a study on whether to join the Streamlined Sales Tax Agreement but decided to wait for Federal legislation.  (Which is ironic because it appears that Federal legislation has been ‘waiting’ for more states to join in).  Last year the state introduced a bill into committee that would have enacted an ‘affiliate tax law’ similar to New York’s.  The bill died in committee due to concern that Amazon would drop its Connecticut affiliate relationships if such a bill was passed.

The momentum at the federal level in support of the Main Street Fairness Act, combined with Governor Malloy’s determination to address the challenge at the state level, could result in Connecticut being the 25th state to join the list of Streamlined states.


CSPAN Discussion on Internet Sales Tax

December 20, 2010

The “Communicators” series on C-SPAN aired a discussion of Internet Sales Tax on Saturday, December 18.  Participating in the discussion were Scott Peterson, Executive Director of the Streamlined Sales Tax Governing Board, Jerry Cerasale, Senior Vice President of the Direct Marketing Association, and Grant Gross, Reporter for IDG News Service (Computerworld, CIO, NetworkWorld, PC World, Macworld and Infoworld).  The video provides a good representation of the internet sales tax collection debate, including:

- Estimates are that states are missing an estimated $20 billion a year in uncollected tax on remote sales.

- Sales tax collection requirements fall only on brick and mortar merchants (and companies with a warehouse or other physical presence in a state).

- The argument relied upon by Internet retailers to justify avoiding sales tax collection is almost 20 years old; dating back to the Supreme Court “Quill” decision in 1992.

Jerry Cerasale of the DMA states several times that out-of-state merchants should not have to collect for states where they do not benefit from police protection, fire protection, education or other services.  Unfortunately, we feel he is missing the point of sales tax. Sales tax is a consumption-based tax on goods and services purchased by local residents.  It is voted on by local voters (or those folks the voters put into office) for projects and services that benefit local communities.

Mr. Cerasale also greatly underestimated the technology available to handle sales tax collection.  Not only is sales tax collection software available that conforms to the Streamlined Sales Tax agreement; we make TaxCloud available at no cost to merchants and it is extremely simple to integrate – less than 20 minutes from registration to sales tax collection in most cases.  FedTax.net also indemnifies merchants from liability for sales tax collected using TaxCloud.

As Mr. Peterson clearly points out in the discussion, the world has changed in the 20 years since the Quill ruling.  Businesses can sell nationally from any location in the country, using a variety of in-house and outsourcing models.  To suggest that the Internet is still in its infancy and needs to be ‘sheltered’ from the business of sales tax collection is simply wrong.

The group also discussed the growing complexity of state initiatives to collect sales tax — Alabama’s mailing to consumers, Texas’ lawsuit against Amazon over nexus issues, and Colorado’s notification requirements for retailers.  Passage of Main Street Fairness Act would eliminate the need for these one-off ‘solutions’ and make it easier for retailers and consumers to comply.


Smartphone technology hastens the shift of sales from local to online

December 17, 2010

This Wall Street Journal article highlights the use of smart phones by in-store shoppers to find the best deal — and very often the best deal is from an online retailer.  The article notes that “The retailer’s advantage has been eroded,” says Greg Girard of consultancy IDC Retail Insights, which recently found that roughly 45% of customers with smartphones had used them to perform due diligence on a store’s prices. “The four walls of the store have become porous.”  The article goes on to cite statistics from Coremetrics that:  “On the Friday after Thanksgiving a year ago, consumers using mobile devices accounted for just 0.1% of visits to retail websites…[t]his Black Friday, they accounted for 5.6%, for a 50-fold increase.”

Unfortunately, the article mistakenly leaves the reader with the impression that the sale is tax free (it is not):  “Tri Tang, a 25-year-old marketer, walked into a Best Buy Co. store in Sunnyvale, Calif., this past weekend and spotted the perfect gift for his girlfriend.  Last year, he might have just dropped the $184.85 Garmin global positioning system into his cart. This time, he took out his Android phone and typed the model number into an app that instantly compared the Best Buy price to those of other retailers. He found that he could get the same item on Amazon.com Inc.’s website for only $106.75, no shipping, no tax.”

The perceived price advantage enjoyed by online retailers makes retail stores more vulnerable to shifts in purchasing habits driven by the new smartphone technology.  The Main Street Fairness Act now pending before Congress would eliminate this structural imbalance.


MA Senator Richard Moore: Any extension of tax cuts should include the provisions of the “Main Street Fairness Act

November 23, 2010

Politico.com published a blog post today by Massachusetts State Senator Richard Moore which gave a ringing endorsement for the Main Street Fairness Act, and which advocates for including provisions of the Act in any extension of tax cuts (generally referring to the extension of the so-called Bush Tax Cuts).
The post closes with the following sobering assessment: The national recession is still threatening America at the state and local level. Without the benefits of H.R. 5660, states will be forced to lay off more teachers, public safety personnel and others in the next two or three years and reduce state and local purchases of private sector services. The resulting increase in unemployment and decrease in state and local government purchases of goods and service could harm the recovery and even lead to a “double-dip” recession.”


Chicago Tribune Article Gets it Right

November 10, 2010

Yesterday’s article in the Chicago Tribune by Columnist Eric Zorn covers all the issues related to sales tax collection by internet merchants.  The article starts by highlighting a local retailer who has been steadily losing business on price to internet retailers.  Mr. Zorn goes on to explain the finer points of use tax reporting and remittance (even helpfully including links to the tax forms that need to be completed for out-of-state sales), and goes on to say that use tax collection “…has a low compliance rate…[f]ewer than 5,000 taxpayers filed ST-44s in fiscal 2010, according to the revenue department, leaving an estimated $163 million in online Illinois sales taxes unpaid.”

The article wraps up with a discussion of why Internet companies have escaped sales tax collection thus far (Quill and Bellas Hess Supreme Court decisions) and why that view is outdated: “It wasn’t a particularly urgent question when the Web was young and e-tailers argued successfully that taxing Internet purchases would strangle the baby of e-commerce in its crib.  But now that e-commerce is an obstreperous adolescent, conventional small businesses are gasping for air and cash-strapped states are eyeing all this lost revenue hungrily.”

Good points, great article, thanks Mr. Zorn.


Appeals Court Ruling in Amazon, Overstock vs. New York State

November 5, 2010

The Ruling:  NY_APPEALS_AMZN_2010_11_04_dec.


States Continue to Feel Recession’s Impact

October 13, 2010

This article recently published by the Center on Budget and Policy Priorities outlines that states are currently experiencing the steepest decline in tax receipts on record.  “As a result, even after making very deep spending cuts over the last two years, states continue to face large budget gaps.”  States experience large shortfalls in fiscal years 2009 and 2010, and the situation is no better for fiscal year 2011 (July 1- June 30 2011).  According to the article, at least 46 states struggled to close shortfalls this year.

The need for states to seek new sources of funds is clear; and the Main Street Fairness Act currently pending in Congress is gaining a lot of support from state Governors.  In addition to replacing sales tax revenue that has declined as shopping has shifted online (down from 40% to 14% in recent years), the MSFA is viewed as a way to help local merchants compete with remote sellers.  Local merchants provide local jobs, which is an added benefit to financially-strapped communities.

 


Petition Announced in Support of Bill that Helps Protect Consumer Privacy

September 2, 2010

We think the Main Street Fairness Act H.R. 5660 has a number of strong points – it would modernize existing laws, promote a streamlined approach to tax collection, return billions of dollars to state revenues and put all businesses (local and remote) on equal footing.  One more important point that has been overlooked is that it supports consumer privacy.  The Main Street Fairness Act will eliminate the need for states to enact burdensome and privacy encroaching reporting laws to enforce sales tax collection.  States have already started requiring online merchants to report on consumers’ purchases – notably North Carolina and Colorado.  Attached is a Press Release from FedTax.net that explains this point of view.  We also have an online Petition that lets people express their support for all of the benefits of HR 5660.


Systemax CEO: Online Sales Tax Collection is Imminent

August 10, 2010

According to this article at Multichannelmerchant.com, Systemax CEO-technology products group Gilbert Fiorentino announced during a session at eTail East in Baltimore that “States are under pressure to raise their revenues, and with e-commerce sales rising, they are seeing these revenues go out of state,” Fiorentino said. “I don’t see the states ignoring it for a long time. Sales tax has become an issue for everyone, and in the near future we’ll all be collecting.”

Systemax owns TigerDirect.com, CircuitCity.com and CompUSA (which has retail locations), so Mr. Fiorentino has a perspective on both sides of the sales tax collection discussion.

if you are at the eTail East conference, look for FedTax.net’s VP Sales, Carl Stefanelli.  He would be happy to explain how our TaxCloud service makes sales tax collection and remittance a breeze for internet merchants of any size.


Friend of Bill (Delahunt)

July 29, 2010

There was a press conference in Washington DC today about The Main Street Fairness Act, a bill introduced by Congressman Bill Delahunt (D-MA) on July 1, 2010. The bill aims to help states retrieve billions of lost sales tax revenues that are currently owed but go uncollected on remote (online and catalog) sales. Rep. Delahunt was joined by South Dakota Governor Mike Rounds (R-SD), Former Speaker of the Iowa House of Representatives Chris Rants (R-IA), state leaders and small business owners.  Here is the Press Release on Rep. Delahunt’s website.  Coverage of the press conference is included in this Washington Post Article.

FedTax.net CEO R. David L. Campbell was on hand to show support for the MSFA bill, and to respond to questions about whether sales tax calculation and collection can be done without causing a burden on retailers.  The answer is an emphatic ‘YES’ .  TaxCloud is our free, easy-to-use sales tax calculation and remittance service for retailers. It’s the only service created solely to comply with the Streamlined Sales and Use Tax Agreement (SSUTA) at a scale to support all internet merchants.

Here’s a picture of David with Representative Bill Delahunt.


TaxCloud™ Breezes Free Sales Tax System Across the Internet

July 2, 2010

FedTax.net announces the launch of TaxCloud, a free, web-scale sales tax calculation engine designed to support all internet merchants. The Main Street Fairness Act, introduced the same day, would require all internet merchants to collect sales tax.

Seattle, Washington – July 2, 2010 – The Federal Tax Authority (FedTax.net), a private company that is committed to making it easy for online merchants to collect sales tax, today announced the launch of its TaxCloud™ sales tax calculation and remittance service. TaxCloud is free and easy to use, and it can be integrated with virtually any accounting or e-commerce shopping cart system. TaxCloud calculates the sales tax due on any purchase in any tax jurisdiction in the nation and stands ready to assist merchants with meeting the requirements of HR 5660, commonly referred to as the Main Street Fairness Act, which is now pending before Congress. 

FedTax.net has been designated a Certified Service Provider (CSP) by the Governing Board of the Streamlined Sales and Use Tax Agreement. The CSP designation means that TaxCloud meets rigorous standards for sales tax calculation. Merchants who sign up with TaxCloud can instantly calculate the local sales tax due on any internet transaction for over 13,000 tax jurisdictions.

The Streamlined Sales and Use Tax Agreement (SSUTA) is the result of the cooperative efforts of 44 states, the District of Columbia, local governments, and the business community to simplify sales and use tax collection and administration. The agreement minimizes costs and administrative burdens for retailers that collect sales tax, particularly retailers operating in multiple states. It encourages internet and mail order retailers to collect tax on sales to customers living in the SSUTA member states. It also aims to level the playing field, so that local brick-and-mortar stores and remote sellers operate under the same sales tax rules. 

TaxCloud can perform all of a merchant’s sales and use tax functions, (except the merchant’s obligation to remit tax on its own purchases). Each member state and associate member state has certified the accuracy of the TaxCloud service. TaxCloud automatically monitors tax codes and incorporates any changes—so all TaxCloud merchants maintain compliance with all local sales tax laws with zero effort. TaxCloud also generates reports and automatically files state-by-state Simplified Electronic Returns for the merchant. In addition, merchants who use TaxCloud will qualify for amnesty from the SSUTA member states for failing to collect sales tax in the past. 

“Achieving Certified Service Provider status is a great accomplishment for FedTax.net,” said R. David L. Campbell, Chief Executive Officer. “Our company was founded specifically to offer online merchants a free and easy way to accurately calculate and remit voter-approved state and local sales tax. The introduction of this legislation by Congressman Delahunt is an important step towards the equitable collection of sales taxes, while simultaneously providing local municipalities with much-needed revenues.”

TaxCloud takes advantage of an extensive cloud computing infrastructure. “By using cloud computing, we were able to build a massively scalable, highly available, and secure service at a much lower cost, which allows us to offer our service free to our customers.  We designed our system from the ground up to be easy to use by businesses of any size, even those with no dedicated IT departments,” noted Paul Onnen, Chief Technical Officer and Chief Information Security Officer. 

Now that all the work involved in achieving CSP designation has been completed, FedTax.net is moving into the next phase of the company’s mission:  To modernize the sales tax subsystems for every e-commerce and point-of-sale system in the country.

About FedTax.net

The Federal Tax Authority (FedTax.net) is a private company that is committed to making it easy for online merchants to collect sales tax. FedTax.net 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 Google, Microsoft and Expedia.

FedTax.net has been designated a Certified Service Provider by the Governing Board of the Streamlined Sales and Use Tax Agreement. The company’s TaxCloud service enables e-commerce retailers to easily calculate and remit voter-approved local sales taxes across the country. TaxCloud precisely determines the correct amount of sales tax due for any transaction, including state, county, city, and localized taxes. It is free and easy to use, and it can be easily integrated into virtually any accounting or e-commerce shopping cart system.    

FedTax.net is headquartered in Seattle, Washington, and has an office in Stamford, Connecticut. For more information on FedTax.net, please visit http://FedTax.net or e-mail service@FedTax.net.

For additional information please contact:

            Beatrice Vaccaro

            The Federal Tax Authority (FedTax.net)

            bvaccaro@FedTax.net

            (206) 452-1686

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