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.


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