eBay and the small business exception

April 22, 2013

In an email Sunday to 40 million eBay users, eBay CEO John Donahoe urged them to oppose the Marketplace Fairness Act unless the small business exception, which exempts online retailers with less than $1 million in out-of-state sales from collecting sales tax, is raised to $10 million or 50 employees.

We’re all for making sure small online businesses don’t have to spend time or money dealing with sales tax (that’s why we created TaxCloud in the first place), but here are three reasons that raising the exemption threshold doesn’t make sense:

1. At the $1 million threshold, most online retailers are already exempt. Nationwide, fewer than 1000 online retailers* have more than $1 million in total sales. (If we consider only out-of-state sales, that figure is even lower.)

2. Collecting sales tax doesn’t require the resources of a large company. The Marketplace Fairness Act requires states to provide free sales tax software and services for online retailers, so online businesses wouldn’t need to spend anything to comply with the bill.

3. Most small online retailers already use e-commerce platforms, which can easily provide add-ons that handle sales tax, just as they provide for shipping—making sales tax collection easy for all their retailers at once. And we’d lay odds that once states can require online businesses to collect sales tax, that’s exactly what they’ll do.

By exempting online retailers with less than $1 million in out-of-state sales, the small business exception already does what it was designed to do: ensure that small online businesses are not burdened by online sales tax collection. But raising the exemption threshold to $10 million or 50 employees would be a mistake.

*According to Internet Retailer‘s Second 500 Guide, only the top 980 online retailers in the nation had over $1 million in sales in 2011.

Colorado’s online sales tax reporting requirements law finally killed

April 7, 2012

A federal judge has finally issued a permanent injunction on Colorado’s 2010 online sales tax reporting requirements law, which called for all online retailers to report purchases made by Colorado residents to the state’s Department of Revenue. A temporary injunction against the law was issued last year just before the reporting requirements would have gone into effect.

In his ruling, Judge Robert E. Blackburn looks at the precedent set by the 1992 Supreme Court case Quill v. North Dakota, which mandated that out-of-state retailers did not have to collect sales tax even as it recommended that Congress address the issue—which, of course, it has yet to do.

Blackburn writes:

Quill puts states like Colorado in a difficult position. The state cannot require out-of-state retailers, retailers with no physical presence in the state, to collect and remit sales tax on sales those retailers make to residents of Colorado. Residents who make purchases from those retailers are obligated to pay use tax on those purchases, but enforcing the use tax is significantly more difficult than enforcing the sales tax. Seeking to enhance enforcement of the use tax on those who make purchases from out-of-state retailers, a state understandably looks to the out-of-state retailers for key information that can enhance enforcement. However, if the state has a mandatory sales tax system, as does Colorado, enforcing a reporting requirement on out-of-state retailers will, by definition, discriminate against the out-of-state retailers by imposing unique burdens on those retailers. Such a system imposes a differential burden on out-of-state retailers because the different burden is imposed precisely because the retailer is an out-of-state retailer entitled to the protection of Quill. Quill creates the in-state versus out-of-state distinction, and the dormant Commerce Clause prohibits differential treatment based on that distinction. Only a change in the law by the Supreme Court or action by Congress can change this situation. Quill, 504 U.S. at 318 (“Congress is now free to decide whether, when, and to what extent the States may burden interstate mail-order concerns with a duty to collect use taxes.”) (emphasis ours)

It’s worth repeating: “Only a change in the law by the Supreme Court or action by Congress can change this situation.”

Our readers may be surprised, given our support of states’ efforts for online sales tax collection in general, that we agree with Judge Blackburn—on his overall ruling, the fact that Quill makes the current situation difficult for states, and his assertion that only federal action, not state, can remedy the situation.

State after state has tried to increase the collection of sales tax on online purchases, but only a federal law, like the Marketplace Fairness Act, can overcome the limits set by Quill—or, more precisely, can exercise the interstate commerce authority reserved for Congress via the (dormant) Commerce Clause.

One other interesting point: Colorado doesn’t include a line on its income tax return form for reporting and remitting sales tax on online purchases. The reason given? That “the amount of tax collected did not justify the printing expense.” We have to think that, while that may have been true in 1974, it wouldn’t be true anymore, and it does seem like a reasonable measure to impose until Congress acts on online sales tax collection.

But the inclusion of this fact in the ruling leads us to another question. The ruling says that “there are at least three reasonable nondiscriminatory alternatives” to reporting requirements that could also increase the collection of sales tax on online purchases: the line on income tax returns, increased auditing of businesses, and consumer education and notification programs aimed at increasing compliance.

What about the other states that have already implemented these, that include the line on income tax returns, have increased business audits, and created consumer education programs—and still have not seen satisfactory compliance with its sales tax laws? Would these states be permitted to implement reporting requirements?

Other ideas in the ruling make us think not, but better legal minds than ours may be tempted to try. We still oppose reporting requirements, primarily because they are an invasion of consumer privacy, but we wouldn’t be surprised if another state, fed up with lack of action by Congress, decides to try this approach.

The best course of action, as we have been arguing for a long time, is for Congress to pass federal legislation allowing states to require online retailers to collect sales tax, for many good reasons.

Debunking another online sales tax myth

October 28, 2011

We’ve started seeing a new line of argument against online sales tax collection in many articles and editorials. It goes something like this:

“An online store shouldn’t have to collect sales tax for a state it doesn’t have a physical presence in because it doesn’t benefit from any of the things sales tax pays for, like firefighters and police. If a store is located in California, why should it collect New York sales tax when that sales tax goes to pay for projects and services in New York?”

This argument would make sense if the online store were paying, not collecting, sales tax. But that’s not the case. It’s the store’s customers who are paying sales tax, and they do benefit from the firefighters, police, libraries, and more that sales tax revenue helps pay for.

Online stores pay taxes wherever they’re located to help pay for the services that their offices benefit from. All that has absolutely nothing to do with whether or not they collect sales tax. Collecting sales tax is—or rather should be—simply part of selling online, just as it’s part of selling on Main Street.

To sum up: The sales tax you pay funds projects and services in your community. That’s as it should be. Collecting sales tax? That’s just part of doing business.

Small business owner makes argument for online sales tax collection in NY Times

October 27, 2011
The New York Times: Small Business: "You're the Boss"

New York Times: Occupy Wall Street? Who Will Occupy Main Street?

There’s a terrific new post up on the New York Times‘ “You’re the Boss” blog. Written by Jay Goltz, a small business owner from Chicago, it makes a great argument for online sales tax collection.

We strongly urge you to read the entire post yourself, but we couldn’t help quoting from parts of it:

On browsing in local stores but buying online:

I have a friend who owns a shoe store, and he tells me that people come in all of the time, try on some shoes, spend half an hour with a member of the sales staff, and when they have made a choice they announce that they are going to order the shoes online — as if it is something to boast about. Boasting to your friends is one thing; boasting to someone who has just spent time trying to help you is rude at best. 

On the ultimate consequences of browsing locally but buying online:

What happens if your local retail stores become a showroom for online stores to such an extent that it forces them out of business? Are you perfectly happy not touching and trying out products? It has already happened with the closing of hundreds of Borders book stores. This is not a level playing field — and I say this as someone who has both retail outlets and substantial online sales.

It’s also happened with several Barnes and Noble locations. When one Manhattan location closed last year, the New York Times interviewed several browsers at the store, and most said they liked to visit the store but didn’t buy anything. They preferred to buy online.

On how the loss of sales tax revenues hurts communities:

Zappos does about $1 billion in sales every year. If Chicago represents 2 percent of the company’s business, that would be $20 million in annual sales. That represents about $2 million dollars of sales tax that the city no longer gets — and no longer gets to use to pay for police, firefighters, teachers and street repairs . . . . How much more is being lost on sales by Amazon (which owns Zappos) and all of the other online retailers?

The loss of sales tax, as well as the loss of the real estate and payroll taxes that those closed stores used to pay, is damaging your city and state. This is a zero-sum game. You may think that if a local store can’t compete with Zappos or Amazon, that’s the store’s problem. And you may be right. But why do the rules favor Zappos and Amazon? Not forcing them to collect sales tax has given them an unfair advantage that ultimately will force all of us to pay higher taxes to local governments.

On local stores and the community:

Saving money online can be a pleasure. But these local stores employ your friends and neighbors, spend millions of dollars in your community, and are hardly taking advantage of anyone. . . . Whether it is the local frame shop, furniture store, luggage store, florist, shoe store, bicycle shop, or eyeglass store, many are struggling. If they are doing well, they are not doing that well. Most stores are not ripping people off. They are trying to make a living, give service, support employees and pay taxes — and they are getting challenged by large companies that can buy cheaper but don’t necessarily provide better value.

This is a fantastic post, and we highly recommend that you head over to the New York Times and read the entire thing.

Misinformation in the press

April 15, 2011

A recent article in the Hawaii Reporter on proposed tax changes in Hawaii includes some misleading language about online sales tax that we’ve been seeing in many press outlets.

We don’t mean to finger the Hawaii Reporter specifically—many, many newspapers and blogs have contained this kind of misinformation. The Hawaii Reporter just happens to be the one we saw this morning when we decided to finally address the issue.

And it turns out that this particular article is a good example, because several of the most common incorrect or misleading “facts” appear in a single paragraph:

One tax that will likely pass is the Internet purchase sales tax. Right now there are two federal legal rulings opposing attempts to tax businesses that don’t have a physical presence in the state (see comment section below for more details). That is under the theory that the businesses don’t have to pay taxes for government infrastructure improvements and services that they will never use.

1. No one is proposing a tax for businesses, online or off. (In fact, no one is proposing a new tax at all, but we’ll get to that.) Online retailers would simply be collecting the sales tax that consumers pay—a tax that, right now, consumers are expected to calculate and send to their state directly (although few do). The anticipated legislation would shift that burden from consumers to retailers.

2. Sales tax is destination-based, which means that it goes to the state where the consumer (who pays the tax; see #1) is located. Which makes sense, because sales tax pays for vital community services and infrastructure—and those who pay the tax are those who benefit from those services and infrastructure.

3. The reason that the Supreme Court ruled that retailers are required to collect sales tax only for states where they have a physical presence, or “nexus,” was not that the court wanted to ensure that the retailer didn’t have to collect taxes for places where they didn’t benefit from government services and infrastructure. It was because the court felt, in 1967, that requiring retailers to collect sales tax for every state they sold in would be too difficult—there are thousands of tax jurisdictions throughout the country, and at the time it would have been too hard for a retailer to keep track of the sales tax rate in every jurisdiction.

The good news is, all that has changed in the forty-four years since the Supreme Court ruling. Today, technology makes it easy for retailers to instantly calculate the sales tax due for any location in the country. It’s no more difficult than calculating shipping rates in real-time, something that nearly every online retailer does. What’s more, sales tax management services like TaxCloud handle every aspect of sales tax collection for the retailer, at no cost. TaxCloud not only calculates the sales tax due, it also files tax returns, generates monthly state-by-state reports, handles audits and exemptions, and more. With services like that, calculating and collecting online sales tax could hardly be easier.

4. No one is proposing a new “Internet purchase sales tax.” Sales tax is already due on online purchases; if the retailer doesn’t collect it, the consumer is supposed to calculate the tax due and send it directly to their state with his or her tax returns. What the legislation would do is shift that burden from consumers to retailers.

It’s strange that so many press outlets are getting these facts wrong. We hope that as the issue gets more and more publicity, journalists become more familiar with it and can address its nuances without including incorrect information.

Reuters on affiliate nexus laws, Main Street Fairness

March 17, 2011
Reuters: States, business watch for effects of Illinois tax

Reuters: States, business watch for effects of Illinois tax

Illinois’ passage of affiliate nexus legislation has inspired another article on online sales tax, this time by Reuters: “States, business watch for effects of Illinois tax.”

The article offers a succinct background of affiliate nexus legislation and the Streamlined Sales Tax initiative, as well as the effect of affiliate nexus laws on states’ budget shortfalls.

But near the end of the article, we once again see that hoary old argument: Collecting sales tax online is too complicated for online retailers. This time, the partner of an accounting firm is quoted as saying that

asking Amazon to collect taxes would create an administrative nightmare because the company has “thousands and thousands of transactions everyday all over the country.”

Leaving aside the irony of the idea that a company that offers millions of items for sale can’t keep track of the nation’s sales tax rates, we are pleased to offer a solution: TaxCloud.

TaxCloud is a comprehensive sales tax management service that calculates the sales tax due on any purchase for any address in the U.S. It’s easy to set up and integrates with any shopping cart system. TaxCloud monitors the tax codes of every tax jurisdiction in the country and automatically updates any changes, so every TaxCloud merchant is always compliant with state tax laws. It also generates detailed reports and creates state-by-state tax returns for TaxCloud merchants. And best of all, TaxCloud is free to retailers.

Can we please put this argument to rest? Collecting sales tax for every tax jurisdiction in the country is not too difficult, not for Amazon or even the smallest sole-proprietor online shop. TaxCloud can manage the calculation, collection, and remittance of sales tax for any retailer of any size.

And that means that opponents of the Main Street Fairness Act will need to find a new argument. When collecting online sales tax is easy to do, fair to local retailers and online retailers, and helps prevent cuts in vital community services—why wouldn’t everyone support it?

Blog Response: PC Mag’s Dvorak is wrong.

August 16, 2010

We couldn’t agree more with this response to PC Mag’s editorial blog post last week. American Programmers Independent wrote this brief commentary response to John C. Dvorak’s mis-characterization of  HR 5660.

We too have been longtime fans of Mr. Dvorak’s work, and were disappointed by his clear lack of understanding (or even any basic attempt at understanding) this matter.  As an editorial, we understand and respect that it is merely his opinion, but we expect more journalistic integrity from the Ziff Davis editorial board.

Our attempts at outreach to Mr. Dvorak and PC Magazine since this editorial was published have not been responded to.

Friend of Bill (Delahunt)

July 29, 2010

There was a press conference in Washington DC today about The Main Street Fairness Act, a bill introduced by Congressman Bill Delahunt (D-MA) on July 1, 2010. The bill aims to help states retrieve billions of lost sales tax revenues that are currently owed but go uncollected on remote (online and catalog) sales. Rep. Delahunt was joined by South Dakota Governor Mike Rounds (R-SD), Former Speaker of the Iowa House of Representatives Chris Rants (R-IA), state leaders and small business owners.  Here is the Press Release on Rep. Delahunt’s website.  Coverage of the press conference is included in this Washington Post Article.

FedTax.net CEO R. David L. Campbell was on hand to show support for the MSFA bill, and to respond to questions about whether sales tax calculation and collection can be done without causing a burden on retailers.  The answer is an emphatic ‘YES’ .  TaxCloud is our free, easy-to-use sales tax calculation and remittance service for retailers. It’s the only service created solely to comply with the Streamlined Sales and Use Tax Agreement (SSUTA) at a scale to support all internet merchants.

Here’s a picture of David with Representative Bill Delahunt.

Response: Time Magazine Cover Story – The Broken States of America

June 30, 2010


I trust you have already seen and read the cover story of Time magazine this week, but if you haven’t, check it out now.

The article does a masterful job of describing the current financial crisis in most states. It even  details how the states have not seen such financial calamity since the Great Depression. Strangely, though, the article does not address the action states took after the Great Depression to ensure such a situation would never happen again. Since you are reading our blog, you probably already know what they did: They created the sales and use tax system.

Their goal at the time rings true to this day, more than 70 years later. The purpose of the sales and use tax paradigm was to have a more progressive, consumption-based system of taxation. After establishing sales and use tax as a way to finance local services, many localities were able to fund up to 40% of their annual budgets through the collection of sales taxes. Unfortunately, the brightest minds of the 1930s could never have imagined a marketplace of the scale and ubiquity of the internet. As shoppers have migrated online, largely for convenience, the practice of collecting local sales taxes at the time of the transaction has not migrated with them. And now that the internet marketplace is maturing, local governments have seen proceeds from sales taxes drop to approximately 16% of their annual budgets—hardly a coincidence.

Most internet merchants do not collect local sales taxes because the Supreme Court, in 1967 (Bellas Hess) and again in 1992 (Quill), ruled that it would be too difficult for a “remote seller” (mail-order catalogs at the time) to calculate and remit local sales taxes for the thousands of tax jurisdictions in the country. In these rulings, the court did point out that one day technology would likely solve this problem, but even then, they said, only an act of Congress could grant states the authority to compel out-of-state merchants to collect sales tax (just as bricks-and-mortar merchants are required to do). Today, many internet merchants rely upon the Quill ruling to justify their non-collection of sales taxes. (Ironically, the Quill Corporation, which litigated this matter against North Dakota all the way to the US Supreme Court in 1992, now collects sales taxes on all their internet sales—even in states where Quill Corp. has no physical presence.)

Hopefully a few of our legislators in Washington, DC, will read the Time magazine article and agree with us that the time has come for federal legislation requiring out-of-state merchants to collect local sales taxes. It is time to introduce (and pass) the Main Street Fairness Act. The Main Street Fairness Act does not contemplate or suggest any new taxes; it simply allows states to require merchants to collect sales tax at the time of a transaction, instead of relying upon the consumer to report and pay these taxes later.

Regarding the Supreme Court opinion that collecting sales tax is too difficult for remote sellers: Our TaxCloud service launches tomorrow! TaxCloud manages local sales tax calculation for every jurisdiction in the United States. In the 23 (soon 24) states that conform to the Streamlined Sales and Use Tax Agreement, TaxCloud also manages collection, remittance, and sales tax returns for all TaxCloud registered merchants—all for free.

Ladies and Gentlemen… Start Your Engines!!!

May 11, 2010

Rumors abound that a certain piece of legislation might be introduced this Thursday!

Increasing state-by-state efforts to recover uncollected sales taxes due for most Internet purchases are creating an increasingly hostile compliance burden on multi-state retailers. If you didn’t think the budget problems were enough to encourage federal action on this matter, perhaps this growing body of state-by-state legislation (such as the so-called “Amazon Taxes,” and aggressive reporting requirements) is enough to compel federal action due to the Commerce Clause of the United States Constitution.

Not to mention, our new TaxCloud service (launching July 1) will eliminate all previous concerns related to undue technical or financial burden (its FREE!) as cited in the 1967 Bellas Hess opinion as the only reason for exempting Remote Sellers from their obligations to collect local sales tax. Bellas Hess anticipated technology could eventually solve the administrative burdens of calculating and remitting local sales taxes for every jurisdiction in the land, but even then only Congress has the ability to grant States interstate collection authority. FINALLY, after 43 years, Congress should now act.

As we like to say here at Fed-Tax.net “Shop Globally, Support Locally!”

Friday Fun

April 23, 2010

We could not help but chuckle when we saw this headline in Daily Finance: “Amazon Sues to Facilitate Tax Cheating”

Response: “Turning Web retailers into tax tattlers” from Cnet News

April 14, 2010

Today, a Cnet News article complained about Colorado’s new internet sales tax law. We posted a comment with our ideas on the matter (scroll down to the comments section of the article).

Response: LA Times invents more Amazon Tax.

February 22, 2010

The LA Times ran an article this weekend about California ABX8 (the emergency amazon tax) – unfortunately, the LA Times does not offer a web-forum for comments/responses. The Article incorrectly states in the subtitle and in the article that the effect of this bill could result in $150 million per year in new revenue for the State of California. The fact-checker seems to have been asleep-at-the-wheel, because the actual Senate Analyses (available here) projected the revenue effect of this bill would be $107 million. Don’t get me wrong, $107 million is a lot of money, but when your state has a 14.6% budget gap, perhaps everyone should start double-checking their numbers and actually doing math. Substantially more revenue is “still left on the table” by all the other out-of-state sellers that are not collecting sales tax (hard to imagine sometimes, but there actually are other companies making sales online – about 3.5 million of them).

California should simply become a Full Member State of the Streamlined Sales and Use Tax Agreement (or SSUTA). The California Legislature already passed related legislation last fall. California now should take the remaining steps to become a full Member State under the SSUTA – a collective effort of 44 states (including California) which has been developing for the last 10 years to simplify and standardize sales tax laws to enable congressional action at the federal level to resolve this matter once and for all.

In anticipation of California’s likely ultimate adoption of SSUTA provisions, at Fed-Tax.net we have already prepared our TaxCloud systems to provide real-time calculation of accurate local sales tax for every jurisdiction in California. Take a moment to try it out at http://myrate.taxcloud.net/. Once California becomes a full Member State under the SSUTA we will be happy (and honored) to help merchants all over the country accurately calculate local sales tax for California residents. We will do this at absolutely zero cost to merchants or consumers (we are paid by the states to perform remote merchants’ sales tax management, reporting, and remittance obligations).

We know nobody likes paying sales tax, but the fact remains that this tax is still due, and when merchants do not collect at the time of sale (as they do in all physical stores), then the consumer is obligated to report and pay these taxes on their own. Since few people do, these taxes go unpaid resulting in massive budget shortfalls as California is now enduring. We think it is terrible that through lack of federal action to-date on this matter an entire generation of consumers on the Internet have grown up feeling that not being charged sales tax on Internet purchases is their constitutional right – and are frequently shocked to learn that they are committing tax fraud when they willfully or at least negligently fail to report and pay these taxes. It is time for California to tell all Internet merchants (not just those with affiliate marketing practices) that it is time for them to respect the budget decisions made by the California voters and their elected officials and to stop pretending it is too difficult, too complicated, or too costly to calculate local sales tax. Our TaxCloud service demonstrates these arguments are without merit, and these merchants are simply avoiding collection as a way to bully local merchants (who must collect sales tax) out of consumer price-competition.

California’s Projected 2010 Budget Shortfall: $ 14,400,000,000 1
AXB8 Projected Revenue: $ 107,000,000 2
Difference: $ 14,293,000,000 3

Total Sales Tax due by California consumers based on purchases from out-of-state Internet retailers

Uncollected Sales Tax (from remote sellers) $ 1,441,100,000 4

Admittedly, becoming a full SSUTA Member State will not solve all of California’s budget deficit, but at least it can cover 10% – and it is not a new tax, and no budget cuts are required.

1-Source: Center on Budget and Policy Priorities – http://www.cbpp.org/cms/index.cfm?fa=view&id=711
2 – Source: State of California Senate Analysis – http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0001-0050/abx8_8_cfa_20100219_175402_asm_floor.html
3-Source: Simple Math
4-Source: The University of Tennessee 2009 Study: State and Local Government Sales Tax Revenue Losses from Electronic Commerce

Colorado Senate revises HB 1193 to focus on Use Tax Reporting

February 9, 2010

The Colorado Senate has revised HB 1193 quite dramatically.

The Good News: It no longer appears to be targeting affiliate marketing.

The Bad News: It makes no mention of conforming to the Streamlined Sales and Use Tax Agreement. In fact, it now goes into extraordinary detail asserting jurisdictional authority over out-of-state businesses.

Specifically, it states that any out-of-state business which does not voluntarily collect and remit Colorado sales tax must:

  1. Notify each Colorado customer that sales or use tax is due on all purchases from the business, and the purchaser must specifically file a sales or use tax return with the Colorado Department of Revenue. Failure to deliver this notification will subject that out-of-state business to a $5 penalty for each failure to notify.
  2. Send separately to each Colorado customer (by actual First-Class Mail by itself in an envelope labeled “Important Tax Document Enclosed”) an end-of-year summary showing the total amount paid by the customer for all purchases over the past year to that business, and reminding the customer again of their obligation to file a sales or use tax return and pay the appropriate use tax for all such purchases.
  3. Send to the Colorado Department of Revenue (by March 1 of each year) a statement detailing each Colorado customers purchasing activities during the preceding calendar year. Failure to send this statement shall subject the out-of-state business to a $10 penalty for each purchaser which should have been included in such annual statement.

There is also a fair amount of language devoted toward empowering the Colorado Department of Revenue the right to issue subpoena requiring attendance to take oral or written testimony under oath, and to produce all records relating to sales to Colorado residents, along with authorization for judicial enforcement and ability to order judgment against the retailer for contempt.

Holy burden building batman!

Now instead of businesses cancelling their affiliate programs in Colorado, businesses may just suspend all sales efforts in Colorado.

Please Colorado legislators – can we have a few minutes of your time to discuss this matter?

UPDATE 3/2/2010 – This was signed into LAW last week (on Feb. 24th) by the Governor of the State of Colorado.

Response: New York Times rails Amazon (but no one else)

December 28, 2009

On the heels of several other articles by other major papers, Randall Stoss wrote a seething article in the New York Times about how Amazon should be required to collect sales tax (quite noticeably the article didn’t point out or suggest that any other Internet retailers should).

This is yet another article about how Amazon.com should be collecting sales tax, even when most other retailers are not.  Another curious aspect of this particular article:  Why does it bother the Old Gray Lady in New York, since Amazon.com is already collecting and remitting sales tax from consumers in New York (though they are understandably not pleased about it).

In our view, the media is putting alot of effort behind a recent report (“Amazon’s Arguments Against Collecting Sales Taxes Do Not Withstand Scrutiny“) published November 16, 2009 by Mr. Michael Mazerov of the “Center on Budget and Policy Priorities.”  Mr. Mazerov is not new to the issues of Internet sales tax matters, having articulated many aspects of the debate more than ten years ago:

In 1998, Mr. Mazerov co-authored a detailed report “A Federal Moratorium on Internet Commerce Taxes Would Erode State and Local Revenues and Shift Burdens to Lower-Income Households.”  Sadly, the conclusions drawn in 1998 ultimately came to pass primarily, although not specifically related to what became known as the “Internet Tax Freedom Act” – which thankfully limited it’s so-called “moratorium” to only “Internet access” and “online services” specific taxation (this legislation was recently extended through 2014).  Particularly prescient was their conclusion at the time:

“The avoidance by affluent consumers and businesses of sales taxes on Internet purchases could mean higher sales taxes or reduced public services for low- and moderate-income households”

In 1999 Mr. Mazerov authored a summary report entitled “Should the Internet Remain a Sales Tax Haven?” (also for the CBPP).  Also a worth-while read on the subject.

Finally, and perhaps most insightfully, in February 2000, Mr. Mazerov testified alongside Iris J. Lav (CBPP Deputy Director) before the US Senate Committee on the Budget:

“When a seller does not collect and send the tax to the state of the purchaser, customers who receive the goods are supposed to pay state and local sales taxes directly. Consumers are supposed to file a tax return showing the value of the untaxed goods they have purchased from remote sellers and to pay the tax on those purchases. More than one-third of the states actually provide information and forms in their personal income tax booklets to help consumers pay sales taxes on purchases from out-of-state companies. Nonetheless, compliance with this self-remittance requirement is minuscule in the case of individual consumers and spotty in the case of businesses — especially small businesses.

The combination of weak tax compliance by consumers and the limited obligation of remote sellers to collect taxes is eroding the sales tax base of state and local governments. As I will discuss shortly, it is disproportionately upper-income households who are avoiding paying their fair share of sales taxes by purchasing from remote sellers. Both the revenue loss and the unfair tax advantages for the affluent are likely to increase because of the still more rapid growth in Internet purchasing that is projected to occur in the next few years.”

Their testimony concluded:

“If initial steps are not taken soon to end the de facto sales tax exemption that applies to most Internet and mail-order purchases, the sales tax burden on lower-income Americans is likely to rise and the access of all citizens to high-quality education and other critical state and local services could be impaired. These outcomes will be all the more severe should Congress enact a blanket sales tax exemption for Internet purchases or even tighter restrictions on the ability of states to require remote sellers to collect and remit sales taxes than currently exist. There is a practical alternative to both of these options. Congressional endorsement of the principle of equal tax treatment of retail store purchases, mail-order purchases, and Internet purchases could encourage the electronic commerce and mail order industries to work constructively with state and local governments toward a workable compromise. Such a compromise could achieve a reduction in sales tax compliance costs for many businesses, while ensuring both that no business or individual avoids paying a fair share of sales tax and that state and local governments remain capable of financing necessary services” 

It seems without question that the CBPP has been familiar with the issues at hand for quite some time – and that Mr. Mazerov is more than sophisticated on these matters, and we eagerly look forward his updated report on the matter, which we predict will be titled: “The first decade of Internet Sales Tax (or lack thereof).”