Why the number of sales tax jurisdictions doesn’t matter

April 1, 2013

Illustration by Cory Thoman - http://clipartof.com/1087428

So what does all that mean?

First, let’s be clear: It would never mean a sales tax return or an audit for each jurisdiction. The Marketplace Fairness Act says that there has to be just one central authority in each state that handles sales tax returns and audits. So no matter how many tax jurisdictions are in a state, there’s just one return to file, and if a retailer is audited, there’s just one audit from the state. And retailers who use state-certified sales tax management services don’t need to worry about audits in general—but more on that in a moment.

So what about sales tax rates, which can vary by jurisdiction?

The good news there is that the Marketplace Fairness Act requires states to provide sales tax management software or services (such as TaxCloud) for free. These programs check and update rates and product definitions for every tax jurisdiction, and it all happens behind the scenes, so sellers don’t need to worry it.

In the end, for online sellers, collecting sales tax is much like handling shipping. There’s a program or service to set up with the online store, and then the program handles everything—no matter how many tax jurisdictions there are.

Back to audits: When retailers use sales tax management programs from state-approved Certified Service Providers (CSPs), they never have to host an audit. The CSP deals with the state instead, so the retailer doesn’t need to worry about dealing with state officials and coming up with transaction records.

Rates, audits, returns, the number of tax jurisdictions—with sales tax management services, retailers don’t need to worry about any of them. It’s all taken care of.


New York Times speaks out for sales tax fairness

March 27, 2013

The New York Times editorial board today made a persuasive case for online sales tax. It’s a simple matter of fairness, the piece says, and it goes on to point out why the Marketplace Fairness Act works as legislation:

The bill would not impose new taxes but would enable collection of taxes already due under state laws. It also overcomes the objection that sales-tax collection would be too difficult for online retailers. It requires states . . . to harmonize their sales-tax rules (24 states already have) . . . . It also requires states to provide tax-collection software . . . at no cost, which many already do. [emphasis ours]

Interestingly, the Times finds the $1 million small seller exception—which we’ve seen little criticism of elsewhere—to be unfair to small bricks-and-mortar retailers. But they rightly point out that including the $1 million exception is a matter of political expedience:

Unfortunately, the bill exempts retailers who have under $1 million in Internet sales from the collection requirement. That perpetuates the problem, because a bricks-and-mortar retailer is not exempt based on total sales. As a political concession to win swift passage, however, the exemption is acceptable as long as lawmakers commit to continued efforts to level the playing field.

It’s great to see the New York Times speak out so forcefully and cogently in favor of sales tax fairness. Given last Friday’s vote of 75-24 in support of the Marketplace Fairness Act, it seems most members of Congress agree!


Debunking 3 myths about internet sales tax

March 8, 2013

The reintroduction of the Marketplace Fairness Act has resulted in the reintroduction of myths and half truths about its impact on businesses. In this post, we counter the three main fears about collecting internet sales tax.

Fear: Collecting sales tax is too difficult.

Some point to the fact that, nationwide, there are over 9,600 tax jurisdictions, and they argue that online sales tax collection would be so difficult that online retailers would have to hire additional staff to handle it.

Fact: Fortunately, technology provides an easy answer. Sales tax rates are easily stored and maintained in a database—it doesn’t matter if there is 1 rate or 100,000. Databases easily handle tax exemptions, too, for every location. Everything needed to figure out the correct tax rate is already present during an online sale: the purchaser’s address, the sales price, and the type of item being purchased.

Sales tax management services, which offer retailers an easy way to manage sales tax, have already been integrated with most e-commerce platforms, so starting to collect sales tax can be as easy as checking a box.

The proposed legislation is doing its part, too, to make collecting sales tax easy. It requires that states simplify their sale tax laws before online retailers start collecting, lets retailers file one sales tax return per state, and centralizes the registration process. It also requires states to make available free sales tax software for retailers that can work with all states.

So much for the concern over difficulty; what about cost? Sales tax management services are available at every price point—including free. So collecting sales tax doesn’t need to cost an online retailer anything.

And it’s also worth noting that most online retailers won’t have to collect sales tax at all. Only retailers with over $1 million in annual out-of-state sales will be affected.

Fear: This will give local stores an advantage over online stores.

Fact: Actually, it will correct an artificial advantage that online stores currently have, creating a more level playing field for all retailers.

Right now local stores have to collect sales tax while online stores don’t, which gives online stores the appearance of a price advantage of up to 10%. Even when bricks-and-mortar retailers also sell online, it doesn’t change the basic fact that in their local stores, they have to collect sales tax, while online stores don’t.

If the law doesn’t change to keep up with the way people shop, the logical conclusion is that many businesses will elect to only sell online—which would mean no local shopping. Picture your community without a bookstore, clothing store, or electronics store. That’s not what anyone wants.

Fear: This is a new tax.

Fact: If you live in a state with sales tax, you already owe sales tax on your online purchases. If the retailer doesn’t collect sales tax, the purchaser is supposed to pay the tax due directly to the state. In other words, this isn’t a taxation issue, it’s a collection issue.

Most people don’t know that they owe sales tax when they buy online, and states find it almost impossible to enforce their own sales tax laws online. That’s why the Marketplace Fairness Act is needed: to allow states to enforce their own laws and end the sales tax loophole that favors online retailers over local retailers.


Making it easy for online stores to collect sales tax

January 31, 2013

The final post in our series for Spree Commerce is up! We look at the different ways online stores can collect sales tax—and how to make collecting easy.


Online sales tax and your business

January 23, 2013

In our new guest post on Spree Commerce, we look at how online sales tax collection may affect your business. Take a look!


Why don’t online retailers collect sales tax?

January 9, 2013

We’ve tackled the perennial question of why online retailers don’t have to collect sales tax in a guest blog post for Spree Commerce. Check it out!


Voters support local tax measures

November 16, 2012

Election Results

With the election over, Politico has taken a look at how local tax measures did throughout the country. The result?

During last week’s elections, voters across the country opted to raise taxes to help their cities, counties and school districts.

“I’m OK with being taxed for making sure we don’t go under and people are taken care of,” said Elizabeth Boyd, 35, an independent voter in Sacramento. “I think it’s really good for us to pay for schools and make sure they’re kept open and teachers aren’t being laid off for ridiculous reasons.”

Whether you agree with this outcome or not, the important thing is that the system works: The people who voted on the tax measures both pay the increased taxes and benefit from the services and projects they fund. Which is as it should be.

Still, we can’t help thinking that it would have been better if the increased taxes were unnecessary. Sales tax is due on online purchases but nearly always goes unpaid, to the tune of $23 billion each year. If that money had been collected at the point of purchase, just as sales tax on bricks-and-mortar purchases is, perhaps none of these tax increases would have been necessary.

If you pay sales tax on an online purchase, it doesn’t matter where the online store is—the sales tax you pay goes to your state and local community, where it funds services that voters approved.

Most people are willing to chip in for services that benefit their community. According to the Politico article,

voters tend to have a more favorable opinion about increasing taxes when they can see that the extra revenue will benefit their community directly. A 2010 analysis by The Associated Press found that voters in a large cross-section of states passed 50 percent or more of the local tax initiatives that came before them. . . .

In California, Sacramento voters, who tend to be more conservative than other areas of the state, supported a sales tax hike by a 2-to-1 ratio in addition to two school construction bonds.

“That’s a pretty clear choice of the people,” [Sacramento] City Councilman Darrell Fong said. “They don’t want to see a reduction in service, especially when it is to public safety and parks. They know we’ve made the cuts already.”