California-Amazon deal gives hope to states and the Main Street Fairness Act

Stateline.org

Stateline.org: Amazon deal with California may set precedent for online tax collection

According to an article on Stateline.org, the deal between Amazon and California on online sales tax collection gives other states hope that they, too, may get online retailers to collect sales tax—though they do not have as strong a position for negotiating as California:

Now that the largest state in the country has seemingly pressured Amazon to change its policy, the result could be a flood of new online tax laws, as other states ask why Amazon can’t treat them the same as it treats California. Danny Diaz, spokesman for the Alliance for Main Street Fairness, a group trying to get the online retailers to collect taxes, says Amazon has undermined its own case by striking the California deal. “You begin your argument by saying you can’t do it, it’s too complicated, it’s unconstitutional and all of this,” Diaz says, “and you end your argument by saying you’ll do it in a year, it’s legal, you can do it. Clearly, clearly the ground has shifted underneath your feet.”

Other states, though, might not be in a position to get the same deal as California. For one thing, Amazon had more of a presence in that state than simply a bunch of affiliates. The company had several wholly-owned subsidiaries in California, which made it tougher for the company to claim that it lacked a physical presence.

The other difference is that California is simply bigger, which may have made Amazon leery of cutting its ties there. Last Friday, the company said it would add 10,000 jobs in the state in coming years. “When you’re California or New York across the table from an Amazon, it’s a pretty big slice of the market,” says Kevin Sullivan, commissioner of the Connecticut Department of Revenue Services. “We don’t have the leverage that a New York has or the leverage that a California has.”

But, the article continues, the Amazon-California deal inspires even more hope that federal legislation on online sales tax—which would make state-by-state laws unnecessary— will finally pass:

For now, Amazon isn’t indicating that it will offer other states the same deal it offered California. But the company is saying what it would like to have happen next: a federal solution. “We’re committed to working with Congress, retailers and the states to pass federal legislation as soon as possible,” Paul Misener, Amazon’s vice president of global public policy, said in a statement after Brown signed the law. That isn’t a new position. Amazon’s case has long been that it isn’t against collecting sales taxes, so long as a federal deal also makes collecting the taxes less burdensome.

That’s actually what most state officials want, too. Legislation in Congress known as the Main Street Fairness Act would require online retailers to collect sales taxes in the state where a purchase is made, but only if the state is among those that that have made their sales taxes more uniform through an interstate collaboration known as the Streamlined Sales and Use Tax Agreement.

When state legislators came to Washington last week to give their view on federal debt negotiations, one thing they asked Congress for was passage of the Main Street Fairness Act. With Amazon and big brick-and-mortar retailers like Wal-Mart and Target forming an unusual coalition in favor of a federal law, their hope is that their side has the clout to win passage. If the California deal adds urgency to the efforts, all the better. “We’re going to face hundreds of millions, billions of dollars in [aid] reductions,” says Neal Osten, director of the National Conference of State Legislatures’ Washington office. “This is something Congress can do for the states.”

With Amazon, Walmart, Target, and many more major retailers (not to mention the Retail Industry Leaders Association) all joining state legislators from both sides of the aisle in supporting the Main Street Fairness Act, surely the bill’s time has come.

“Still,” the article says, “there are reasons for skepticism.”

For one thing, some online retailers are still taking a hard line against collecting sales tax. Jonathan Johnson, president of O.co (formerly known as Overstock.com), points out that Amazon’s size and wealth positions it to cope with differing sales tax rates and definitions around the country. Smaller online companies might suffer more. “I think the Main Street Fairness Act is anything but main street and anything but fair,” Johnson said in an interview with Stateline. “Big retailers would like to create a barrier to entry for any new company.”

The other reason for doubt is that Congress has struggled to forge compromises on all big issues lately. A proposal that would result in more taxes being collected—even if the taxes are legally already owed—will be an especially hard sell, even if the failure to pass it will likely result in a new round of messy fights between states and online retailers.

If these are the only arguments standing in the way of the Main Street Fairness Act, then we take heart. There are reasonable answers to these objections.

First, the notion that “the Main Street Fairness Act is harmful for small online retailers”: It’s really not. Technology has reached the point that today, it’s no more difficult to collect sales tax online than to calculate shipping rates. Look at TaxCloud, a comprehensive sales tax management service that’s available at no cost for retailers. With services like TaxCloud available—again, at no cost—there’s no reason for any retailer, no matter how small, to find it difficult, costly, or burdensome to collect sales tax.

Second, there is this scare statement that “the Main Street Fairness Act is a hard sell in Congress”: We disagree. While it is easy to simply say things like “it will never happen” or “Congress is too divided,” nobody in Washington DC is saying that about this issue (except for the ATU and NTP). In fact, it’s one of those rare bills that has bipartisan support. It may have been introduced by a Democrat, but it has lots of Republican supporters, among them Senator Bob Corker (R-TN), Senator John Boozman (R-AR), and Tennessee Governor Bill Haslam (not to mention all the Republican supporter in state legislatures, such as Luke Kenley (IN) and Evelyn Lynn (FL), to name just two). We think that once hard facts overcome all the inflammatory rhetoric about the Main Street Fairness Act, voting for it should be a pretty easy decision.

The Stateline article is well worth reading in its entirety for its thorough summary of the arguments for and against online sales tax collection. Just keep in mind that the arguments against it aren’t the last word.

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