FedTax Statement for the Record to the House of Representatives Committee on the Judiciary Hearing: Exploring Alternative Solutions on the Internet Sales Tax Issue

March 18, 2014

Download This Statement via FedTax Judiciary Committee Statement 031214

Introduction

Chairman Goodlatte, Ranking Member Conyers, and distinguished members of the Committee on the Judiciary, thank you for the opportunity to submit this Statement for the Record on this hearing, “Exploring Alternative Solutions on the Internet Sales Tax Issue.” Our company, FedTax, is the proud inventor and operator of TaxCloud, a free online sales tax compliance service now being used by approximately 5,000 online retailers of all sizes. TaxCloud is available at no cost to retailers because we are a Certified Service Provider (CSP) for the twenty-four Member States of the Streamlined Sales and Use Tax Agreement (SSUTA). Our company was founded in 2008 by technology executives with decades of experience building some of the most recognizable brands in e-commerce. At our previous companies we experienced firsthand how difficult sales tax compliance can be, and we made it our mission to make sales tax compliance easy for businesses and more efficient for state and local governments. As we have grown, our executive team has expanded to include payments industry executives as well as nationally recognized sales tax and public policy experts.

In his opening remarks, Chairman Goodlatte named several technology-related fears regarding the Marketplace Fairness Act that we are uniquely qualified to address: technical capabilities of the prescribed free software, integration costs related to the free software, concerns for the direct mail industry, and concerns related to additional audit exposure.

We agree that Chairman Goodlatte’s stated concerns are important, and we are convinced that they can (and should) be addressed.

Background

This testimony is not based upon hypothetical notions or unproven theories. Rather, it is informed by our direct experience as a SSUTA CSP since 2010.

A brief background: SSUTA’s goal is to minimize or eliminate the burdens of sales tax compliance for businesses. Since its inception in 1999, it has sought input from state and local governments as well as the business community through regularly scheduled public meetings.

During its first few years, SSUTA stakeholders publicly debated many different sales tax modernization and simplification schemes (a subset of which have been proposed before the committee today). Ultimately, they agreed on an approach that relied upon modern technologies to accommodate the many nuances and variations in sales tax law across state and local governments.

Over the next few years, the SSUTA states developed the Certified Service Provider program, including the policies, practices, and procedures to be employed by each of the participating states to test and verify that a CSP candidate’s software and/or service adhered not only to SSUTA’s rules (including sourcing, taxability, rounding rules, etc.) but also to each state’s statutes. Today, six companies (including ours) have achieved CSP designation. It should also be noted that achieving CSP designation is not a one-time event but an ongoing process; our systems are regularly tested, verified, and audited by the states to maintain our certified status.

During this time, SSUTA stakeholders also worked with the tax technology group TIGERS[1] to develop standard formats for states to provide open source sales tax rate and jurisdictional boundary data for use by the business community. The work with TIGERS also included the specification and adoption of a Simplified Electronic Return (SER), based upon the widely used e-file format.

The current SSUTA Member States represent more than half of the states with sales and use tax laws, including Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

In these SSUTA states, each of the CSPs already manages all aspects of sales tax compliance for their respective retailers. These responsibilities include:

  1. Calculation of applicable sales tax rates (including state, county, city, and special jurisdictions)
  2. Application of any full or partial product-based exemptions
  3. Capturing any available use-based exemptions
  4. Detailed jurisdictional (and sub-jurisdictional) reporting of sales tax collections
  5. Automated, timely filing of sales tax returns
  6. Automated remittance of sales tax proceeds to applicable jurisdictions
  7. Primary response to any jurisdictional audit inquiries

Technical Capabilities

Some have suggested that systems capable of keeping track of the sales tax laws of over 9,600 jurisdictions simply do not exist, or that the technologies necessary to achieve compliance would be prohibitively costly for small businesses. TaxCloud’s direct work with taxpayers refutes these assertions. It doesn’t matter if there are 9,600 or 96,000 jurisdictions; modern e-commerce systems are adept at easily managing such diversity, as Joe Crosby noted in his testimony before the committee. Businesses do not need to spend enormous quantities of time or resources to achieve compliance.

Integration Costs

Even with free software already available, opponents continue to complain that businesses will be burdened with the costs of integrating such software into their existing systems. This line of argument ignores the reality that all but the very largest retailers (and a few retailers who rely on legacy systems) 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, which is constantly responding to evolving cyber-crime threats, payments and security industry best-practices, and, yes, even 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. There is no reason to believe these e-commerce platform vendors will not respond to action by Congress in an equally competitive manner to provide sales tax management services for their clients. In fact, this process is already underway—almost all of the most widely used e-commerce and order management platforms have already adopted and integrated with one or more CSPs.

Direct Mail Concerns

Some direct mail businesses are concerned that they could be required to include within their mail order catalogs a very long insert with every possible sales tax rate in the country. But mail order catalogs are designed to be mailed to their customers, so each customer’s mailing address can be harnessed to solve this problem. Just as the catalog vendor prints each customer’s address on each catalog, there is no reason they couldn’t print the effective sales tax rate for that specific address right on the mailing label!

Leveraging the address block for other customer-specific data is a technique routinely practiced in the direct mail industry today. Most mail order catalogs already print customer-specific Customer Reference or Quick Service Numbers (usually 5 to 9 characters), which the customer conveys to a sales agent when placing a phone order or enters on the website when placing an online order.

Furthermore, most catalog retailers encourage their customers to place their orders online or by phone; many don’t even offer paper ordering forms any longer. Of course, once a customer “channel shifts” from the printed catalog to an online storefront or telephone order, both of these ordering systems can rely upon free software and services provided by the states to determine the correct sales tax rates and even apply any available item-level exemptions.

If a catalog exemption is to be included, it should be carefully crafted so as not to favor catalog retailers over other remote retailers (or local retailers).

Audit Exposure

Another concern is related to the threat of remote state audits. Under the current CSP system, CSPs, not their retailers, are responsible for responding to audit inquiries. In most cases the CSP already has all of the information necessary to respond to such audit requests, without any effort by the retailer. As this committee considers alternatives to deal with audit concerns, one option is to rely upon the integrity of the states’ CSP certification process and shield any retailer relying upon the services of a CSP from remote state audits.

Important Concepts for Alternative Solutions

FedTax believes that the central tenet of any internet sales tax legislation must be a federal framework based upon the current sales tax structure. Anything else would cause an immense disruption to businesses across the nation.

Some witnesses have asserted that SSUTA’s simplifications are insufficient to remove perceived compliance burdens. We would note that the other solutions that were proposed, such as origin sourcing or an “IFTA-like” home-base proposal, create compliance burdens of their own—and if they choose these options, states would be jettisoning a fully developed, functioning system that has been eliminating compliance burdens for 15 years in favor of an untested, hypothetical system that might take years to create and that businesses and consumers have no experience using.

Disruption of existing business processes by changing to a new system will damage the economy and cause needless delays in solving this pressing problem.

Compliance burdens can be eliminated by requiring states with collection authority to provide retailers with automated technology solutions (including software and/or services) that can manage compliance tasks for all states with collection authority, and that are verified and certified by each such state’s revenue agency to ensure compliance with that state’s sales and use tax laws. In addition:

  • Certified systems must be allowed to file sales tax returns and remit sales tax proceeds on behalf of remote retailers.
  • Certification is necessary for states to have the certainty necessary to grant comprehensive liability relief for remote retailers relying upon such systems.
  • States must be required to certify multiple providers to ensure an open and free market.
  • Providers of certified systems must be compensated by the certifying state to eliminate costs for remote retailers. Such compensation should be paid by the states from the remotely collected sales tax proceeds.
  • Retailers’ reimbursement for expenses related to integration and initial setup costs should be paid by the states from the remotely collected sales tax proceeds.
  • States must provide publicly available electronic (machine-readable) data sources for sales and use tax rates, jurisdictional boundaries, and taxability of goods and services. These data sources must be available for all businesses to rely upon, even those not using a certified system.
  • States must allow certified systems to automatically register businesses in their state.
  • States must support a central registration process to allow remote retailers to register easily and quickly in all states.
  • States must make a single statewide agency responsible for accepting sales tax returns and sales tax proceeds.
  • Recognizing the multichannel nature of modern retail, states must be able to accept multiple (nonduplicative) sales tax returns, possibly one per channel.
  • Destination sourcing must be required for interstate sales. Destination-based sourcing returns the tax collected to the customer’s tax jurisdiction.
  • There must be limitations on audits, such as restricting audits to sellers above a certain threshold, or a consolidated audit, or even exempting retailers that use a Certified Service Providers from audits.

The beauty of this proposal is that this system is in already in place today and it is working. The SSUTA system currently provides proven technology solutions for the thousands of retailers that are already collecting today. Some of the other ideas that have been proposed at the hearing have not been tested and are not currently in use. Forcing states and businesses across the country to adopt radically different systems will create disruption and unnecessary expense.

Why should Congress discard the Streamlined Sales Tax Governing Board, which has been perfected over several years, and replace it with a different structure? A simpler answer would be to give collection authority to all states that meet congressionally mandated minimum simplification requirements and require them to provide technology as listed above to reduce compliance burdens.

We know what works. It is not a single rate. It is not origin sourcing, or any of the other alternatives presented at the hearing. They will simply muddle tax reporting further. Inaction by Congress will encourage states to continue attempts to circumvent Quill and find solutions that may or may not benefit the retail community and may or may not further simplification and uniformity.

What won’t work:

  • Origin sourcing. This scheme shortchanges state and local governments by sending their consumers’ tax dollars to other states and countries. It also would turn jurisdictions with no sales tax into e-commerce havens.
  • Requiring reporting instead of remittance. This scheme is burdensome for businesses and would require entirely new systems at revenue departments to process and respond to such reports. This is a highly inefficient way to collect tax that is owed.
  • Reporting remote sales to a clearinghouse for distribution to states. This increases administrative expenses and replaces one bureaucracy with another—such as creating an IFTA for sales tax.
  • Granting states the power to exclude noncompliant retailers rather than having them collect sales tax. States have enough difficulty tracking down in-state sellers that do not collect sales tax; the process of identifying remote sellers that aren’t collecting and then engaging in a legal process to bar them from selling into the state, is unduly lengthy and litigious, not to mention very unfriendly to businesses.

Dramatically changing the way sales tax works is not a solution. It would be a disruption for both businesses and governments and carries unacceptable costs for both.

The issues cited as barriers for business to collecting—fear of audits by states where the retailer has no locations, exorbitant integration costs for “free” software, catalog sellers, and data privacy—are all easily resolved by legislation. For example, limitations on the frequency of audits and dollar thresholds can reduce audit burden or risk. Audits of remote sellers could be performed by the seller’s home state or by a multistate compact. Legislation should clarify that integration costs should be paid by the states.

Conclusion

The simplest, least expensive, and easiest solution is to require remote retailers to collect the sales tax at the destination and provide the technology to do so at no cost.

We urge the committee to draft a bill reflecting these core concepts and report it favorably to the House of Representatives for action in this session of Congress. Your action would reward the years of effort and cooperation between businesses and states to modernize and simplify sales tax collection and administration while eliminating tax compliance burdens.

Mr. Chairman, thank you for the opportunity to submit this Statement for the Record on this important issue.

R. David L. Campbell
Chief Executive Officer
The Federal Tax Authority, LLC


[1] The Tax Information Interchange Task Group of ANSI ASC X12 was formed in 1991, and initially worked with traditional EDI formats. The Task Group produced X12 standard Transaction Set 813, the generic EDI tax filing, which is still in use today in the Motor Fuel and Sales Tax areas. TIGERS began working with XML in December 2000, and issued its first production schema set in 2003.The task group became “TIGERS” in December 1994, with the realization that technical standards were not enough – states and their partners needed guidance and assistance in turning the standards into actively supported electronic commerce programs. The group broadened its scope to include peer reviews of state technical implementations and mappings, guidance in technical infrastructure for e-commerce, and model documentation for the business rules enforced by the state programs.

How sales tax management services handle audits

July 8, 2013

Congress is currently considering legislation to allow states to require online retailers to collect sales taxes. The bill that was passed by the Senate in May, the Marketplace Fairness Act, has raised concerns about how it could affect the way businesses are audited.

At TaxCloud, we handle not only sales tax calculation and collection but also filing and audits for many of our merchants. While we don’t know exactly what future legislation may say about audits, here’s what our experience dealing with audits has been like.

First, a little background: The 24 states that have designated us a Certified Service Provider (CSP) have agreed not to hold our merchants liable for any tax calculation errors, and in the event of an audit, these states deal first and primarily with us, not the business itself. So how does this work?

When one of our merchants is audited, the state begins by contacting us. We act as the intermediary between the state and the merchant. The state lets us know that it will be reviewing the merchant’s transactions and conducting an audit beginning on a particular date, and we in turn notify the seller.

The merchant doesn’t need to provide any additional information at this point, as long as we have complete transaction data. If there is transaction data that we don’t have, the merchant needs to supply it.

During the audit, the state sends any information or document requests directly to us. Occasionally we may need the seller’s help to respond. For instance, if an item was classified as tax-exempt but it’s not clear in the transaction records exactly what the item is, we’d ask the seller to provide a description of the item. The state contacts the merchant directly only if there is evidence of fraud.

If future legislation follows this pattern for audits, it’s good news for businesses: It means that states will go to sales tax management services for data that businesses have traditionally had to supply, so businesses won’t be faced with hosting an audit.


Update: States eager for online sales tax action

February 7, 2013

In early December, we posted about states taking action on online sales tax collection.

As we noted then, states can’t do much without federal legislation, and support is growing in Congress for a bill that would give states full authority to require online retailers to collect sales tax.

But in the meantime, more states have started looking at what they can do.

Hawaii, Florida, and Michigan are all considering bills that would require an out-of-state retailer to collect sales tax if the retailer has an affiliate in the state.

Hawaii is also looking at adopting the Streamlined Sales and Use Tax Agreement, a set of guidelines that make collecting sales tax easy for retailers.

And while Virginia isn’t considering state action, it is counting on congressional action. The state’s proposed plan for transportation funding assumes that Congress will pass online sales tax legislation, allowing Virginia to collect hundreds of millions of dollars in uncollected sales tax.

States have already said that online purchases are subject to sales tax—but most of that sales tax goes uncollected. What they need now is federal legislation, and with each state-level bill or resolution, they’re sending Congress the clear message that the time to act is now. Let’s hope Congress is listening.


Guest TaxGirl post: “Why I support the Marketplace Fairness Act”

August 27, 2012

Every August Forbes contributor Kelly Phillips Erb, who writes the TaxGirl blog, asks her readers to send in guest posts to be published while she’s on vacation.

This year she provided three topics for guest posts, including “Is it fair to require online retailers to collect and remit state sales tax?”

Sten R. Wilson has contributed a post on that topic titled “Why I support the Marketplace Fairness Act.” In it, Wilson, owner of a sheep farm in upstate New York, explains that for him, collecting sales tax has been made much easier by states’ simplification of sales tax laws (through the Streamlined Sales and Use Tax Agreement) and by automated sales tax management services.

He supports the Marketplace Fairness Act because it provides incentive for states to simplify their sales tax laws:

The combination of today’s freely available technology and states’ simplification efforts is a great benefit for small businesses like mine. It eliminates bureaucracy, promotes efficiency, and increases productivity and profitability. It makes dealing with sales tax much, much easier for small business owners.

Passage of S.1832 the Marketplace Fairness Act will prompt all states to simplify their sales tax laws. Therefore, I support the Marketplace Fairness Act.

We sincerely agree! Wilson’s perspective as a small business owner is an important one in the online sales tax collection debate, and one that we haven’t seen enough in the media. The post is definitely worth a look.


What wasn’t said at yesterday’s Senate hearing, but should have been: Free!

August 2, 2012

At yesterday’s Senate Commerce Committee hearing, numerous senators voiced their support for the Marketplace Fairness Act, which would close a loophole that allows online retailers to avoid collecting sales tax.

Several senators, among them Senator Lamar Alexander (R-TN), said that they were particularly concerned about states’ rights. Under the current system, states cannot enforce their own sales tax laws; the bill would allow states to decide if they want to require online retailers to collect sales tax from state residents. Others cited concerns about simple fairness: Local small businesses—particularly those that sell high-end goods such as cameras, jewelry, and electronics—often serve as showrooms for customers who then buy online to avoid paying sales tax. The inequity is hurting local small businesses across the country.

Opponents of the bill were primarily concerned with the costs and complexity of collection, saying that it would be too difficult and expensive for small online retailers. Several supporters responded that if the bill is passed, more sales tax management services will be created and the market will act to bring down costs.

Scott Peterson, Executive Director of the Streamlined Sales Tax Governing Board, testifies before the Senate Commerce Committee, and even shows off to the members of the committee how easy and accessible sales tax has become – that you can even do it on a common device, like this iPad (and yes, that’s TaxCloud).

Which brings us to what wasn’t said: The market has already acted. A completely free sales tax management service is available right now. TaxCloud calculates the sales tax due for any region of the county, collects and remits sales tax, files sales tax returns, creates detailed records of sales tax transactions for shop owners, and even provides indemnification and audit relief—in short, it resolves every concern raised by Senator Kelly Ayotte (R-NH). It does all this at absolutely no cost to the business.

It’s too bad that this wasn’t mentioned by any of the bill’s supporters, because it directly counters opponents’ primary objection to the bill. We don’t have to wait for the market to act to bring down the costs of collecting sales tax. That cost can range from zero to as much as a business wants to pay, depending on the service a business chooses—there are multiple options already on the market today, including Accurate Tax, ADP TaxWare, Avalara, CCH SpeedTax, Exactor, and TaxCloud. Importantly, a no-cost option is already available.

Overall, the hearing showed a great display of support from many senators—and, we were pleased to note, except for only a few instances (which we will resist detailing here), an atmosphere of professionalism, courtesy, and collegiality reigned, even among those who disagreed on the issues.

You can view a video of the hearing on the Senate Commerce Committee website.


Our hearts are racing (for internet sales tax collection)!

July 26, 2012

As most of our readers are no doubt aware, changes have been happening fast for online sales tax collection. Here are the basics you need to know:

  • A few days ago, the House Judiciary Committee held a hearing on the Marketplace Equity Act (H.R. 3179). Several members of Congress, both Democrat and Republican, testified at the hearing in support of the bill, and an article in the Wall Street Journal proclaimed that “the hearing revealed that a large number of lawmakers had moved beyond the question of the legitimacy of collecting online sales taxes and were focused on how to avoid making the process overly burdensome.” (We have the answer, of course: services such as TaxCloud, which take the cost and complexity out of collecting sales tax online.)
  • Meanwhile, the Senate bill on the same issue, the Marketplace Fairness Act (S.1832), will be the subject of a hearing before the Senate Committee on Commerce, Science, and Transportation next week on August 1.
  • Also, New Jersey Governor Chris Christie has joined the list of Republican lawmakers who support federal online sales tax legislation. He also made a deal with Amazon for the company to begin collecting sales tax on purchases made by New Jersey residents in July 2013, in exchange for which the company will build two new distribution centers in the state. Since Christie is one of the leaders of the Republican party—he is frequently mentioned as a potential vice-presidential candidate—we hope this will put an end to the divisive rhetoric that only Democrats support online sales tax collection.
  • Another sign of the momentum that federal legislation is gathering, news articles on online sales tax collection are proliferating everywhere. A few we recommend:

Retailers, lawmakers revive call for Internet sales tax, MSNBC/CNBC, July 26

Online sales tax effort gains traction at US House hearing, Wall Street Journal, July 24

Proposed online sales tax gaining momentum and foes, FOXBusiness, July 24

Supporters of online sales tax say it’s good for consumers, PC World, July 24

Online sales tax is coming!Wall Street Journal, July 21

Pass the online sales tax! The Washington Post Editorial Board, July 16

Tax break nears end for online shoppersWall Street Journal, July 16 NOTE: FRONT PAGE

States, Congress rallying for an e-sales taxWashington Post, July 8 NOTE: FRONT PAGE

Our opinion: If the bipartisan momentum and support for online sales tax collection continues at the current pace, this issue could provoke a seemingly extraordinary achievement: that Congress can get something done, even in an election year!

This legislation is good for consumers, state and local governments, and businesses. Opponents (primarily eBay) claim the legislation will hurt businesses, but their argument ignores the actual substance of the proposed legislation. The Marketplace Fairness Act S.1832 (and the Marketplace Equity Act H.R.3179) require that states simplify and standardize their sales tax systems and they must provide the software (or services) for retailers to easily comply. We strongly support action by Congress on this issue.


We ♥ Senator Cardin – The most entertaining 108 seconds in online sales tax collection history

April 26, 2012

Yesterday we were in Washington DC to attend the Senate Finance Committee hearing we mentioned a few days ago. We would encourage everyone to watch the video of entire hearing, particularly Professor Walter Hellerstein’s outstanding testimony (time-code 47:50 to 52:47). But we are posting today to tell you about the very exciting portion of the hearing when Senator Cardin (D-MD) asked questions of the witnesses (time-code 84:41 to 91:32). Our regular readers will truly appreciate the last 108 seconds.

We have prepared this unofficial transcript of Senator Cardin’s questions from the video of the hearing.

Senator Cardin: Thank you Mr. Chairman, and let me thank the panelists. I want to talk about one of the major sources of revenues for our state, and that’s the sales and use tax.

Dr. Rubin, I want to focus on the fact of how much of those revenues are not being collected today. It’s been estimated as a result of out-of-state shipments, principally through the internet, that there’s eleven billion dollars ($11,000,000,000) a year not being collected. Now, I’ve got the Maryland number, and the Maryland number is thee hundred million ($300,000,000). Which is an interesting number because the governor is talking today about bringing the legislature back to a special session in May because of a three-hundred-million-dollar gap and is looking at increasing a lot of taxes in our state because we need three hundred million dollars to balance our budget. If we had this sales and use tax, we would have a balanced budget, and there would be no need to bring the legislature back into session.

Which brings me to the Marketplace Fairness Act – trying to establish a level playing field. You can go to a retail store in Maryland. Use your phone to take a photograph of the identification [of a product], then go on the internet and get that product shipped into Maryland and avoid the sales tax. Price might be identical, but you’re avoiding the sales tax. To me this is a matter of tax integrity.

The person who does that is supposed to pay a use tax and I have heard that retailers or internet sellers feel that it is such a burden to have to collect a sales tax. It is a huge burden to ask Marylanders to pay a use tax. So, aren’t we picking winners and losers if [we] don’t take some action to provide for a level playing field?

Dr. Rubin: I am a big fan of there being some action to help coordinate these issues. I think that as more sales get done on the internet or electronically or through catalogs, state and local governments are going to be at a disadvantage. So, congressional action to coordinate this seems like a no-brainer, from my perspective.

Senator Cardin: Mr. Zinman, I see that you’re anxious to respond, I’m going to give you a chance.

Mr. Zinman: I’m just agreeing.

Senator Cardin: Ok, well, good. Let me just pose the question. There’s two issues that are usually raised by those who have asked for delay of federal action.

One is that it’s a little complicated, because of all the different sales and use taxes. I point out that there’s free software available that would assist in the collection of this.

The other is for a small business exception – which is included, by the way, in the Marketplace Fairness Act. I’m not aware of any small business exceptions on the brick and mortar requirements to collect sales tax if you have a facility located in our state. Is there any administrative reason why we shouldn’t be moving forward on this, that cannot be solved?

Mr. Zinman: Absolutely not. If you look at what’s happing with BestBuy – that is even though they’re multi-state, they’re brick and mortar – they’re hurting a lot because of the internet sales because . . . I’ll give you a perfect example. An individual can go to New York and buy a set of golf clubs . . . and he has a place in Florida. He buys an expensive set of golf clubs, and he says ship it to Florida, no sales tax. It’ll cost him $30 dollars to ship those golf clubs down to Florida . . .

Mr. Henchman: Florida has a very high sales tax.

Mr. Zinman: . . .but he’s not paying . . . he’s supposed to pay. I’m not saying what he’s supposed to do. I’m saying what actually happens. What actually happens is, he is not reporting that sales tax in Florida.

Senator Cardin: I haven’t check with Florida’s use taxes, but my guess is there’s not many being filed by individual consumers.

Mr. Zinman: In New York, we have a line on our New York State – and many states have a line on their tax return – asking the taxpayer to voluntarily compute and give back the sales tax they should’ve paid, in the form of a use tax. But you now take a state like Florida, that doesn’t even have a state income tax form to report this – they have use tax forms, they are there, they’re available. But many people who have multi-state residences – I’m just using New York and Florida as an example because that’s a corridor that a lot of people travel. A lot of individuals are ignoring the taxes they have to pay.

Senator Cardin: It’s my understanding that we have a form in our state where you can include the use tax, we have that in Maryland. The three-hundred-million-dollar number I gave you is a net number. I don’t know the exact amount of use taxes that we collect from individual consumers, but it’s minuscule.

Mr. Zinman: I’m sure its minuscule.

(time-code 89:44)

Mr. Henchman: Senator, very briefly . . . I just want to be sure the goal of simplification is not minimized here. Because while that retailer has to collect, and doesn’t get a de minimus threshold, they are only collecting one sales tax. Internet retailers would have to track and collect 9,600 across the country. And yes there is software on the rates, but that software doesn’t help you to distinguish between all the sales tax holidays, and all the different rates on different products.

Senator Cardin: Are you telling me that computers cannot figure this out?

Mr. Henchman: It’s not computers, it’s tracking the states laws . . .

Senator Cardin: I have my iPad. And I’m amazed at what I can put into my iPad and get an answer immediately. Are you trying to tell me we don’t have a computer program that can figure out this issue?

Mr. Henchman: It’s not a question of computer programming, but a question of tracking changes in legislative laws. There’s a lot of . . .

Senator Cardin: And my iPad gets me the up-to-date information on traffic instantaneously. You’re trying to tell me we don’t have that technology available today?

Mr. Henchman: I work at the Tax Foundation. We do our best to keep track of all state and local laws and changes, and it’s difficult for us, and we’re not running a business.

Senator Cardin: Well, I think you better get a better program.

Gallery: [laughter]

Senator Cardin: I find this hard to understand that when you’ve got governmental actions, which are very public actions . . . every time taxes are changed . . . that that can’t be done? I’m not minimizing the issues of simplicity.

Mr. Henchman: The laws . . .

Senator Cardin: And we’ve been talking about this ever since I’ve been in Congress, which is twenty-some years. This is being used as an excuse for inaction! It’s not a problem that can’t be overcome.

Mr. Henchman: To me it’s not an excuse for inaction, it’s an excuse for the right kind of action. Some of the bills you’ve mentioned have very different . . .

Senator Cardin: Well, after twenty-some years, don’t you think it’s time for some action?

Mr. Henchman: I agree, but . . .

Senator Cardin: Thank you. I appreciate your opinion. Thank you, Mr. Chairman.

Chairman Baucus: I like it!

Gallery: [laughter]

Chairman Baucus: That’s good. Good for you guys.

Gallery: [laughter]

Chairman Baucus: That’s how you get information out.

Gallery: [laughter]

Based upon the testimony and statements provided to the committee, we hope Chairman Baucus and the rest of the committee will act quickly to advance the Marketplace Fairness Act.


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.


Update on Florida’s push for online sales tax collection

October 17, 2011
Florida

Florida: Striding ahead on online sales tax collection

Florida State Senator Evelyn Lynn (R-7th) and State Representative Michelle Rehwinkel Vasilinda (D-9th) are continuing the fight for online sales tax collection in Florida.

According to this article on WCTV.tv, Vasilinda “has re-filed HB 321—the Streamlined Sales and Use Tax Agreement (SSUTA)—in the Florida Legislature for the upcoming 2012 session” and Senator Lynn re-filed the companion SB 430:

The Representative believes that the passage of her bill would help to resolve projected shortfalls in our state’s budget.

Representative Rehwinkel Vasilinda has also filed House Memorial 323, a resolution that requests the U.S. Congress adopt the Main Street Fairness Act on the national level. Collecting sales tax from Internet purchases has bipartisan support, and Florida State Senator Evelyn Lynn (R-Ormond Beach) has filed a companion bill as well as a Senate Memorial Resolution to Congress on the SSUTA.

In a previous blog post, we pointed to a great Tallahassee Democrat editorial praising Vasilinda. Unfortunately the editorial is now behind a firewall on the newspaper website (a search in the archives for “Pinching the loophole,” the original title of the article, will bring it up if you’re interested enough to pay to read the entire editorial)—but we did quote from it extensively in our post, and you can also read a portion of it on the Stand With Main Street Florida website.

But that’s just one of the posts we’ve written about the huge support for online sales tax collection in Florida. That support comes from business groups, the business-backed think tank Florida TaxWatch, small business owners, and of course, other newspaper editorials.

As our regular readers may recall, we even traveled to Florida in April of this year to attend their Main Street Fairness Day in Tallahassee, where we spoke alongside other Florida businesses in support of the corresponding bills from the Florida legislature’s previous session.

We’re behind Sen. Lynn and Rep. Rehwinkel Vasilinda 100% in their efforts on behalf of Florida. It seems pretty clear that most of Florida’s residents and businesses are behind them, too.


St. Petersburg (FL) Times: Florida needs Main Street Fairness and Streamlined

October 4, 2011
St. Petersburg Times

St. Petersburg Times: Florida need Streamlined and Main Street Fairness

A new editorial in the St. Petersburg Times urges Florida lawmakers to adopt the simplified sales tax guidelines of the Streamlined Sales and Use Tax Agreement and support the federal Main Street Fairness Act.

The whole editorial is worth reading—it’s not long, and it’s cogent, incisive, and well-argued—but we had to quote this section in its entirety:

For years, every major Florida business group has pushed for the state to join the Streamlined group, rightly arguing the outdated tax code discriminates against their members. While any business with a traditional store in Florida must collect the 6 percent state sales tax on goods, out-of-state online-only merchants don’t. That gives them an enormous pricing advantage. Florida TaxWatch has estimated the shift to e-commerce has cost at least 100,000 Florida jobs. And a University of Tennessee study estimates Florida will lose more than $800 million in uncollected sales taxes this year for goods bought through merchants like Amazon.com.

Even Republican-controlled Texas has joined California and New York in championing this cause of tax fairness. Meanwhile, in Tallahassee, favoring out-of-state carpetbaggers over businesses that employ Floridians is far more acceptable. (emphasis added)

We talked in a recent post about how not collecting sales tax online has cost jobs by keeping funds that might pay for new firefighters and police out of city coffers. In Oklahoma City, for instance, the mayor suggested that online sales tax collection could have created 100 to 150 jobs for firefighters and police officers.

The TaxWatch statistic in this St. Petersburg Times editorial refers to another way that e-commerce is costing jobs. Bricks-and-mortar retailers employ far more people than online retailers. In fact, for every person hired at an online retailer, four would have been hired at a bricks-and-mortar retailer.

We need to level the playing field between online and bricks-and-mortar retailers and give bricks-and-mortar retailers a fighting chance to protect retail jobs.

Take a look at the rest of the St. Petersburg Times editorial. It’s worth a read.


Florida business groups inspired by California-Amazon deal

September 19, 2011

According to a Sarasota Herald-Tribune (FL) article, Florida business groups are hopeful that the deal between California legislators and Amazon—which repeals California’s online sales tax collection law in exchange for the reinstatement of Amazon’s 10,000 California affiliates and requires both groups to work together for the passage of the federal Main Street Fairness Act; if the federal bill doesn’t pass by the end of July 2012, the California law will be reinstated—will “help convince [Florida] lawmakers to take similar steps”:

Mark Wilson, president of the Florida Chamber of Commerce and a member of the Florida Alliance for Main Street Fairness, saw the California deal as a positive sign for Florida retailers.

“If Amazon can collect and remit sales taxes in California, it can do it [in] Florida,” Wilson said. “Recently, both Texas and California passed E-fairness legislation to level the playing field for small businesses. Now, Amazon’s agreement to collect sales tax in California — just like Main Street retailers — proves that they don’t need a special tax deal at the expense of Florida-based small businesses either.”

Wilson said Florida lawmakers now have “a unique opportunity to put small business job-creation ahead of Amazon’s tax subsidies.”

While Wilson has a point—I don’t think anyone would argue that it’s too difficult for Amazon to collect Florida sales tax (especially with services like TaxCloud available)—Amazon has good reasons to support federal online sales tax collection legislation (the Main Street Fairness Act) and oppose state-by-state laws. While the Main Street Fairness Act would actually make it easier for businesses to collect sales tax, state-by-state laws have become so numerous and varied that they make it extremely difficult for businesses to collect sales tax in more than one state.

One way that the Main Street Fairness Act makes it easier for businesses to collect sales tax is by authorizing online sales tax collection only in those states that have simplified their sales tax laws by joining the Streamlined Sales and Use Tax Agreement (SSUTA).

Although Florida’s recent bill to join SSUTA stalled, we would urge Florida lawmakers to pass that bill, and soon. Not only will it make it easier for businesses to collect Florida sales tax, but it will also put Florida in the perfect position to require all online retailers to collect sales tax when the Main Street Fairness Act—which now has the full support of California and Amazon behind it—becomes law.

Joining SSUTA will also make it clear to Congress that Florida, like California and Amazon, supports the Main Street Fairness Act.

Many states have been tempted to skip the step of joining SSUTA and go straight to requiring some online retailers (mostly large ones, like Amazon) to collect sales tax. California started out taking that approach. But as California and other states have discovered, that approach ends up hurting businesses, which have to deal with all the complexities of state-by-state sales tax laws, and in-state affiliate marketers, which are usually dropped by retailers so that the retailer can try to avoid collecting state sales tax. The end result is fewer jobs in the state and no increase in collected sales tax.

Joining SSUTA is the better approach. It simplifies sales tax collection for businesses while leveling the playing field between online and Main Street retailers. We hope this is the approach Florida decides to take.


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.


Editorial: Florida (and the country) needs online sales tax collection

August 26, 2011

We were thrilled to see this editorial from the Tallahassee Democrat (reprinted on the News-Press.com website), which makes one of the strongest, most cogent arguments for online sales tax collection that we’ve ever read. We urge you to read the entire editorial, but here’s part of it:

State Rep. Michelle Rehwinkel Vasilinda reminds – or attempts to remind – her tax-resistant colleagues in the Florida Legislature that collecting a sales tax on purchases made online is not the same as raising taxes.

Raising money, yes, but as Rehwinkel Vasilinda put it at the end of last session, “The concept of leaving tax revenue on the table, especially when we really need it, is really irksome.”

Taxes should be collected on purchases from online merchants, the same as purchases in brick-and-mortar shops, which suffer from this not-so-level playing field of commerce. Business groups such as Associated Industries of Florida and the Florida Retail Federation would like to see the disparity addressed.

It’s not just the tax avoidance that’s a problem for local merchants. In many cases local stores end up functioning as a showroom for online shoppers who like to look at the merchandise in person, but buy it online where there’s no sales tax.

But because online sales cross state boundaries and tax rates vary so much nationwide, a meaningful online sales tax would be most effectively and uniformly collected under federal legislation.

This clear-sighted editorial ends with an endorsement of both the Main Street Fairness Act and the Streamlined Sales and Use Tax Agreement (SSUTA). SSUTA was created by forty-four states and the business community to simplify sales tax collection and make it easier for businesses to collect sales tax. The Main Street Fairness Act would allow states that have adopted SSUTA’s guidelines to require all retailers, whether in-state or out-of-state, to collect sales tax on purchases made by state residents.

Last spring, Rehwinkel Vasilinda, D-Tallahassee, sponsored HB 455 to have Florida join the agreement, and Sen. Evelyn Lynn, R-Daytona Beach, sponsored the companion SB 1548. Neither moved forward, though perhaps now, with this umbrella effort in Congress gathering steam, Florida lawmakers will join the 23 states that have joined the coalition.

Roughly 1,400 retailers already collect sales tax in those “streamlined” states on a voluntary basis.

They’ve remitted more than $700 million to their respective states, yet estimates are that the actual amount lost could be as much as $23 billion by 2012.

This legislation is overdue in Congress, and the collection of this tax is critical to Florida, which needs to join the future and work to close this unfair tax loophole here.

To those who have said that online sales tax collection is not a bipartisan issue: Note that the measure to have Florida join SSUTA was introduced in the Florida Senate by a Republican and in the House by a Democrat.

In an article on another Florida website, Matthew Falconer, who is running for mayor of Orange County (FL), also points out that the Main Street Fairness Act is a bipartisan issue and offers a way to combat the false perception that it increases taxes:

Not surprisingly there is support for the bill on a state level by Republicans and Democrats alike. Even Jeb Bush supports some type of internet sales tax. There are complications to the collection procedures but the technology exists to address those problems. The obstacle to the internet sales tax collection problem is political. It is seen as a tax increase which is taboo for Republicans.

The easy solution to that problem, again supported by Jeb Bush, is to reduce taxes by the same amount of the increased revenue from internet sales tax collection. This does not create additional taxes but levels the playing field between brick and mortar stores, the ones that employee our neighbors, and on line retailers (many of which are based in other countries).

Other politicians have also suggested that if sales tax were collected online, other taxes could be eliminated. As we blogged about recently, Indiana State Senator Luke Kenley and West Virginia delegate John Doyle have said that if online retailers collected sales tax for their states, the inheritance tax or the groceries tax (respectively) could be eliminated.

We have long said that online sales tax collection is a bipartisan issue, one that should matter to anyone who cares about fairness and tax equality. We’re glad to see that politicians on both sides of the aisle agree.


Facts on Main Street Fairness Act and Streamlined Sales Tax, including job figures

August 24, 2011

We recommend our readers take a look at two sources of thorough backgrounds on the Main Street Fairness Act, the Streamlined Sales and Use Tax Agreement, and online sales tax collection in general.

A fact sheet issued by the International Council of Shopping Centers is worth reading in its entirety, but we were particularly interested in some of the statistics it includes, which we hadn’t seen before:

  • One of out every 11 U.S. jobs is shopping center-related; for every 100 individuals directly employed at regional shopping centers, an additional 20 – 30 are supported in the community due to multiplier effects
  • Each $1 million of new retail sales adds 3.61 jobs. To illustrate: 
    • $1 million in new sales at Best Buy’s average e-commerce and B&M shares is expected to create 3.47 jobs;
    • The same $1 million in new sales at Amazon’s average is expected to create 0.88 jobs.

Again, it’s definitely worth reading the entire fact sheet. The simple bulleted arrangement is surprisingly effective, and with each fact, the implicit argument for the Main Street Fairness Act becomes stronger and stronger.

The other piece is an article by Sylvia Dion at allBusiness (we blogged about an earlier article of hers on the Main Street Fairness Act). This time she focuses on the Streamlined Sales and Use Tax Agreement (SSUTA) and how it works in the Main Street Fairness Act. Unlike any other article we’ve seen on the subject, this one discusses SSUTA’s small seller exception:

One definition, not elaborated on in the legislation, but found in the SSUTA, is the small seller exception. Cory Barwick, Lead Tax Analyst at CCH -a Wolters-Kluwer business, explains that the SSUTA’s small seller exception “allows businesses with less than $500,000 in annual revenue to be exempt from the remote (out-of-state) seller collection requirement.” According to Barwick, who reports on Streamlined Sales Tax developments for SalesTaxSupport.com, “the Streamlined Sales Tax Governing Board has made many revisions to the SSUTA since its inception in an effort to entice states to become members to the agreement, including the November 2010 update to the small seller exception,” which he adds, “makes sense as these businesses are the ones that generally cannot afford the expense associated with the collection of remote taxes.”

Of course, we feel that collecting sales tax online shouldn’t cost businesses anything, which is why we’ve made TaxCloud free to all retailers. But if small businesses are concerned about the potential costs of online sales tax collection, the small seller exception should put them at ease.

Dion also makes it clear that the Main Street Fairness Act is not a nationwide “Amazon tax”:

By the way, although the proposed Main Street Fairness legislation and the state “Amazon laws” have a similar goal—to require the collection of sales tax by out-of-state sellers who do not have a physical presence in their statethe Main Street legislation is not a national “Amazon law.”  These state laws are presumptive nexus laws, meaning that if a business engages in the activity described in the law, a presumption of “nexus” arises. Nexus, an oft overused term, means that a business has established a sufficient connection to a state to allow that state to subject the business to taxation or, in the case of sales tax, to impose a sales tax collection requirement. State “Amazon laws” focus on an expanded view of nexusin essence, that the use of in-state “affiliates” who post a web-link to the out-of-state seller’s on-line store is akin to creating a physical presence in the state.
But the Main Street Fairness legislation makes no mention of nexus. What’s key here is that states must be full-member SSUTA states in order to have the right to assert a collection requirement on out-of-state sellers. Essentially, the use of in-state “affiliates” that refer customers to an out-of-state seller via a web-link becomes irrelevant under the Main Street legislation.

In other words, under the Main Street Fairness Act, there would be no need for retailers like Amazon and O.co (formerly Overstock.com) to drop their affiliates—no need for states to pass sales tax laws focused on affiliates in the first place.

We have to disagree with Dion on one subject, though. At the end of the article, she asserts that the Main Street Fairness Act doesn’t have bipartisan support. We disagree. While the official sponsors of the bill are Democrats, numerous Republican politicians have voiced their support for this legislation—among them, Senator John Boozman, Tennessee Governor Bill Haslam, and Indiana State Senator Luke Kenley. There is absolutely nothing partisan about the Main Street Fairness Act—it doesn’t create a new tax or raise taxes; it simply ensures all retailers follow the same sales tax rules; and it gives states complete control over their own sales tax laws—and we believe that we’ll see more and more Republicans voicing support for the bill in the days to come.


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