Local sales tax on Election Day

November 2, 2012

Vote!With Election Day fast approaching, we’re seeing more and more articles on local sales tax measures that will appear on the ballot.

Any changes in sales tax have to be approved by voters, and in many places this year’s ballot includes a new sales tax to fund local initiatives. No one like paying taxes, of course, but these measures often receive a lot of local support—those who pay the tax are the same ones who benefit from the services it provides.

So what kinds of sales tax measures are appearing on ballots?

In Creek County, Oklahoma, a one-third-cent sales tax would buy much-needed equipment for the volunteer fire department.

In Rifle, Colorado, a three-quarter-cent sales tax would help pay for a new water treatment plant to replace the existing one, “which is old and in danger of failure.”

In Augusta, Kansas, a one-percent sales tax would pay for a new water line that would triple the amount of water carried to the city, without raising water rates or property taxes.

In Deridder, Louisiana, a quarter-cent sales tax would pay for renovations to the 98-year-old courthouse, which has a broken wheelchair lift and no elevator.

In Saratoga, California, a one-eighth-cent sales tax would fund law enforcement programs, emergency room services, and health insurance for low-income children.

In Jackson, Missouri, a sixth-cent sales tax would fund renovations to the public library.

In El Paso County, Colorado, a quarter of one percent sales tax would provide deputies for the understaffed sheriff’s department.

In Little Rock, Arkansas, a half-cent sales tax would pay for a highway improvement program that will create 40,000 jobs.

In Marion, Ohio, a 0.25% sales tax would allow for the rehiring of laid-off police and fire department personnel and help maintain city streets.

In Baldwin County, Alabama, a one-cent sales tax would go to local schools, which currently operate with less per-pupil spending than the state average.

All of these sales tax measures will appear on the ballot in November, to be either approved or rejected by local communities.

But if online retailers collected sales tax—which is already due on online purchases—these measures might be unnecessary.

States are losing out on $23 billion in uncollected sales tax every year—sales tax that shoppers owe but that goes unpaid because online retailers don’t have to collect it. That $23 billion would be supporting these kinds of projects and services without the need
for any increase in local sales tax.

Keeping fire and police departments staffed, maintaining roads, and supporting local schools without any tax increases—just more reasons to support online sales tax.

States increase online sales tax enforcement–which is why retailers should support federal legislation

August 31, 2012

FedTax CEO David Campbell has a guest post on Forbes’ TaxGirl blog

Our CEO, David Campbell, has written a guest post for Forbes’ TaxGirl blog. The post tackles the provided topic “Is it fair to require online retailers to collect and remit state sales tax?” and focuses on the concerns of states without sales tax and why they should support federal online sales tax legislation. Take a look—we may be biased, but we think it’s a great read.

The post is particularly timely because of the recent sales tax news from California and Pennsylvania.

Both states are beginning to require online retailers, no matter where they’re located, to collect sales tax—even though no federal legislation granting them that power has been passed. States are no longer content to wait for federal legislation; they’ve begun taking online sales tax into their own hands.

As Mr. Campbell says in the post, this has particular importance for online retailers in non-sales-tax states because it means that even without federal legislation, it’s unlikely that they’ll be able to avoid collecting sales tax for long.

The LA Times has a great article on California’s move toward online sales tax. It includes this quote about increasing enforcement:

On Thursday, the tax agency announced new efforts that include spending $10 million over the next three fiscal years to hire nearly 100 tax specialists, auditors, lawyers and call-center operators. An additional 35 people will be needed in the fourth year, the board said recently.

These new workers are hired to identify and contact what the board estimates are “upwards of 2,000” out-of-state businesses that should be collecting sales tax under the new law and take action against any suspected scofflaws.

Pennsylvania, too, is increasing its enforcement of online sales tax collection, as this Internet Retailer article explains. Existing law says that any retailer with a physical location in the state must collect Pennsylvania sales tax. The state has said that this includes third-party retailers who use eBay or Amazon warehouses for order fulfillment, and beginning in September, it’s going to be requiring all online retailers to abide by this law.

With states already starting to require online sales tax collection, why the need for federal legislation?

Aside from legal issues regarding state authority over out-of-state businesses (which will have to be resolved either by Congress or in the courts), there’s a very good reason for all retailers to support federal online sales tax legislation: It would make states simplify their sales tax laws.

As Mr. Campbell says in his post:

While it isn’t possible to turn back the clock on online sales tax collection, it is possible to make it easy for sellers to collect sales tax. The Marketplace Fairness Act requires states to simplify and standardize their sales tax laws before they can require any out-of-state seller to collect sales tax. Online retailers in non-sales-tax states should be supporting this legislation: It’s the only way they can make sure that collecting sales tax won’t be too complicated.

Sales tax has always been due on online purchases. Online retailers haven’t had to collect sales tax in the past, but that loophole is about to end, one way or another.

Let’s end it the right way, by making sure states simplify and standardize their sales tax laws.

Arizona governor wants Congress to act on online sales tax collection

April 13, 2012
Governor Jan Brewer

Governor Jan Brewer wants Congress to act on online sales tax collection

An article in the Arizona Republic reveals that Arizona retailers are asking Governor Jan Brewer to level the playing field between bricks-and-mortar and online stores. A bill currently stalled in the Arizona legislature would require Amazon, which has four warehouses in the state, to collect sales tax on purchases made by Arizona residents.

The article says that Governor Brewer has refused to get involved, saying that this is an issue for the federal government to deal with.

While we fully support Arizona retailers and believe that online retailers should be collecting sales tax, we also agree with Governor Brewer (in fact, we sent her a letter to that effect).

Because of the limitations imposed by the Supreme Court cases Bellas Hess and Quill, only Congress can level the playing field for online and bricks-and-mortar retailers. We hope Governor Brewer will communicate her support for congressional action to Arizona Senators Kyl and McCain, ideally in advance of the rapidly approaching Senate Finance Committee hearing on April 25 (which is another blog post we’ve been meaning to get to).

By the way, we found a factual error in the Arizona Republic article: It erroneously says that Amazon sales are tax-free in Arizona. But like every other state with sales tax, Arizona applies sales tax to online purchases. If sales tax is not collected at the time of purchase (and online, it usually isn’t) the purchaser is supposed to report and pay the tax directly to the state.

Idaho governor supports online sales tax collection

April 12, 2012
Idaho Governor C.L. "Butch" Otter

Idaho Governor C.L. “Butch” Otter

According to this AP article, Idaho’s Governor Otter restated his support for online sales tax collection last Friday in an address given from his office.

Governor Otter joins many other lawmakers in voicing his support for online sales tax collection. And we’re pleased to note that despite the press’s characterization of the GOP as against online sales tax collection, Governor Otter is the latest in a long line of Republican politicians who publicly support it, including U.S. Senators Lamar Alexander (R-TN), Mike Enzi (R-WY), Roy Blunt (R-MO),  Bob Corker (R-TN) and John Boozman (R-AR)Tennessee Governor Bill HaslamMaine Governor Paul LePage, and many local lawmakers, such as Texas State Representative John Otto, Indiana State Senator Luke Kenley, and Florida State Senator Evelyn Lynn.

We also found the last two lines of the AP article interesting:

House Majority Leader Mike Moyle, who accompanied Otter as he addressed reporters on the Capitol’s second floor, reiterated his opposition Friday.
Moyle says Congress should take action first.

We’re thrilled to see that even those who oppose local action on online sales tax collection are not opposed to the basic principle—they just acknowledge that local action isn’t enough. Given the fact that this issue deals with interstate commerce, the (dormant) Commerce Clause applies, which means that only Congress is authorized to change the rules and limits established by the Supreme Court in Bellas Hess (1967) and Quill (1992). Those cases said that retailers without a physical presence in a state were not required to collect sales tax for that state (although they in no way suggested that tax would not be legitimately due).

Local and state laws cannot supersede that precedent. In order for their online sales tax collection laws to have any real effect, states need Congress to pass a law granting states the option to require online retailers to collect sales tax—this option simply isn’t available to them today (at least, not without significant legal challenges, as we have seen over the past few years). It’s for that reason, as well as many others, that we support the Marketplace Fairness Act.

Hopefully Governor Otter will channel his support and urge Idaho Senators Mike Crapo (R) and James Risch (D) to join the other fourteen bipartisan sponsors of the Marketplace Fairness Act and work to pass the bill this year.

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.

Georgia legislature passes online sales tax law

April 4, 2012

Late last week, Georgia’s state legislature passed a law requiring online retailers with affiliates in the state to collect sales tax. It will next go to the governor, who has said he will sign it. Georgia is a member of the Streamlined Sales and Use Tax Agreement, which means they have already simplified their sales tax laws to make it easier for retailers to collect sales tax.

When other states have passed these kinds of affiliate nexus laws, online retailers have responded by simply ending their affiliate relationships in the state. These laws end up hurting small businesses that rely on affiliate marketing income and do not bring in any additional sales tax revenue.

Interestingly, the National Conference of State Legislatures opposed the legislation, but not because they don’t support online sales tax collection:

The National Conference of State Legislatures opposes such legislation at the state level, and is lobbying for a federal law.

“States want to go after this money that’s owed to them, which is understandable,” Behlke said. However, he said, unless federal legislation is passed that gives states greater authority to collect the tax, states will continue to miss out on billions in revenue.

The NCSL is correct, federal legislation is best—and as state after state passes this kind of law (Georgia is the fourteenth to introduce such legislation), they send a clear statement to Congress that a federal law is desperately wanted and needed.

This quote from the president of the Georgia Retail Association neatly summarizes a few of the reasons so many states and retail associations favor online sales tax collection:

“The reality is that brick-and-mortar stores have a responsibility of collecting sales tax from their customers at the point of sale,” said Rick McAllister, president of the Georgia Retail Association and a proponent of the tax. “With the evolution of the Internet, most of our members who have Internet sales collect tax on their sites, but there are some who don’t. It’s not a new tax. What we’re asking folks to do is collect the sales tax from their customers and remit it to the state of Georgia just like all the brick and mortar stores do.”

In other words, bricks-and-mortar stores are collecting sales tax while online stores are not, creating an inequity that favors online store over their Main Street counterparts. And he makes an important point: Sales tax on online purchases already exists. If the online retailer doesn’t collect it, the purchaser is supposed to remit the tax on their own.

This fact isn’t well-known, as this quote from a Georgia shopper reveals:

Even when the rule takes effect, Hayes said she doubts it will deter her from shopping on the Internet, since she’s mainly in it for convenience.

“If I wanted to save money, I’d probably just go to a bricks and mortar establishment,” she said. “I’m paying so it shows up at my doorstep. If there’s an extra surcharge, I probably won’t even notice that I should be upset about it.”

But the fact is, this isn’t an extra surcharge. Shoppers are already supposed to pay sales tax whether they buy online or in local stores. With this law, that sales tax will simply be collected by retailers, taking the burden of calculating and remitting off shoppers.

Because so few know of this law and even fewer abide by it, states are losing a vast amount of revenue at a time when few can afford it. According to a report drafted by the Special Council on Tax Reform and Fairness for Georgia, the lack of online sales tax collection will cost the state $410 million in 2012 alone.

For all these reasons—because the current situation hurts Main Street retailers; because states are losing hundreds of millions in revenue; because a tax that is due is simply going unpaid—we expect to see more and more states join Georgia and the thirteen other states that are calling for online sales tax collection, until a federal law is finally passed.

Georgia’s Governor Deal should follow Maine’s Governor LePage’s recent example and reach out to Senators Johnny Isakson (R) and Saxby Chambliss (R) to urge them to support the Marketplace Fairness Act (S.1832).

eBay relaxing opposition to the Marketplace Fairness Act?

March 29, 2012

It all started when Maine’s Governor Paul LePage sent a letter to Maine’s Senators Snow and Collins, urging them to support the Marketplace Fairness Act (S.1832).

Then, we learned (from an article by Jonathan Riskind, Washington Bureau Chief for MaineToday Media) that eBay had written a response letter to Governor LePage. Yesterday, eBay announced/confirmed this letter.

We are happy to note that eBay did not write in opposition to the Marketplace Fairness Act but instead simply confirmed that small business retailers should be adequately protected from new burdens (which is already provided for in the bill).

We have taken a moment to review eBay’s letter carefully and noticed something odd. Mr. Riskind’s article cites the eBay letter:

eBay notes there are a variety of internet sales tax bills pending in Congress and says it supports a “robust” exemption set by the U.S. Small Business Administration, which will “be able to most accurately measure which businesses need protection the most.”

We could not find this quote in eBay’s Letter.

We also wrote a letter to Governor LePage regarding his support of the Marketplace Fairness Act and eBay’s reported objections to it, which we sent yesterday (before eBay released their letter).