A recent editorial in the Orange County (CA) Register combines in one place nearly every misconception and outright error we’ve heard about the Main Street Fairness Act.
Let’s start with one we often see: “It raises taxes.” This is unequivocally wrong. The Main Street Fairness Act would not create a new tax or raise current taxes. Sales tax is already due on online purchases; it’s just not necessarily collected by the retailer at the point of purchase. If it’s not, consumers are required by law to send the tax directly to the state. Few do, but that doesn’t change the fact that they are supposed to. By allowing states to require online retailers to collect sales tax, the Main Street Fairness Act would simply shift the remitting requirement from consumers to retailers.
Here’s another one:
We believe that taxes should have a reasonable connection to the government benefits they support. While out-of-state retailers don’t charge sales taxes, they also don’t reap any of the benefits from another state’s government. Out-of-state businesses never contribute to the wear-and-tear on state highways, public safety needs, or other basic infrastructure costs.
We also believe that taxes should “have a reasonable connection to the government benefits they support.” Which is why sales taxes, paid by the consumer, go to fund vital services in the consumer’s community, such as police, firefighters, schools, libraries, parks, road maintenance, and more. The out-of-state retailer doesn’t benefit from these services in other communities, but they also don’t pay for them. Online sales tax is destination-based, which means that the sales tax the shopper pays always goes to the shopper’s state and community. Out-of-state retailers don’t contribute anything to other states’ governments and communities, and the Main Street Fairness Act wouldn’t change that.
Then there’s this: “It would be nearly impossible for online businesses to comply with the nation’s patchwork of sales tax laws.” That’s hogwash! Calculating the sales tax due on a purchase is no more difficult than calculating shipping costs in real time, something nearly every online retailer does. With today’s technology, it’s not a problem for online retailers to collect sales tax for every tax jurisdiction in the country. The editorial says that “no business could keep track of every jurisdiction’s fluctuating rates and regulations.” That may have been true at one point, but it’s not true any longer—in fact, our company was founded specifically to solve that problem. Our TaxCloud service, which is available for free, automates all the work associated with collecting sales tax for retailers of any size, even sole proprietorships. We’re doing everything we can to shout from the mountaintops that collecting sales tax online is easy.
The editorial also creates an impression of the Streamlined Sales Tax Governing Board as a shadowy group of taxmen who want to overthrow the country’s tax rules in order to raise taxes. This is ridiculous, and nothing could be further from the truth. The entire purpose of the Streamlined Sales and Use Tax Agreement (SSUTA) is to make collecting sales tax easier for retailers.
The SSUTA is the result of over 10 years of work by 44 states, the business community, and local governments with the goal of reducing the costs and administrative burdens of collecting sales tax for retailers and governments alike. It does this by simplifying common tax definitions (so that the category “candy,” for instance, means the same thing in every state), standardizing reporting procedures so that retailers don’t have to submit different tax returns to each state, and standardizing critical sales tax data (e.g., sales tax rates, tax base definitions, and jurisdictional boundary definitions) so they can be consistently and systematically applied in all states. All this is designed to make it easy for out-of-state retailers to comply with local sales tax laws and collect sales tax for multiple states.
Please note, because this is important: The Streamlined Sales Tax Governing Board does not have the power to raise taxes. States that are members of SSUTA still set their own tax rates through their elected representatives.
The governing board is composed entirely of state officials—elected representatives or appointed officials—four from each SSUTA member state. You can read more about who serves on the governing board here; in fact, the entire agreement that states sign on to when they join SSUTA is available on the Streamlined Sales Tax website, along with a large library of other documents. Plus, any member of the public can attend the meetings of the governing board. It’s hard to imagine how the governing board could have made their organization more open and transparent.
And let’s not forget, no one is forcing states to join SSUTA. Each state decides on its own, through its normal legislative process, whether or not to adopt SSUTA guidelines and join SSUTA. Enactment of the Main Street Fairness Act will not change that.
The editorial ends with this completely untrue statement: “It’s true that online businesses reduce consumers’ sales tax burdens.” Actually, as long as online retailers don’t collect sales tax, they’re increasing consumers’ sales tax burdens. Just because they don’t collect sales tax doesn’t mean sales tax isn’t due—as we said earlier, it is, and when the retailer doesn’t collect it the law requires the consumer to send it directly to the state. We think it imposes a burden on consumers to require them to keep track of their online purchases, calculate the sales tax due on them, and add that amount to their annual tax returns. If online retailers collect sales tax, consumers have to do none of that.
But it’s primarily two groups that are being hurt most by the current situation: local retailers, who do have to collect sales tax and who are losing the fight to compete with online retailers, and local communities, which are suffering massive cuts to vital services because the proceeds from voter-approved sales taxes are rapidly evaporating as more and more retail commerce moves online.
Last year, California lost at least $1.4 billion in unpaid sales tax on online purchases. That’s $1.4 billion that the state should have received and did not, simply because online retailers chose to not collect it.
Would the collection of online sales tax solve all of California’s money woes? No, of course not. Would it be a huge help? Absolutely.
The Orange Country Register itself has written extensively on the local effects of service cuts due to lack of funds: “Money troubles cut into firefighting resources“; “County transit slashes bus service, cuts 400 jobs“; “OC health providers brace for state cuts“; “County’s Health Care Agency slashes services“; “Governor’s cut to housing assistance hits local seniors“; “O.C. law enforcement criticizes proposed early release of prisoners“; “O.C. lays off 210 county workers“; “Local schools brace for more cuts after proposition fails“; “O.C. officials worried about prison cuts.”
Times are tough. Collecting online sales tax can make things a little easier, without creating a new tax or raising taxes.