FedTax Statement for the Record to the House of Representatives Committee on the Judiciary Hearing: Exploring Alternative Solutions on the Internet Sales Tax Issue

March 18, 2014

Download This Statement via FedTax Judiciary Committee Statement 031214

Introduction

Chairman Goodlatte, Ranking Member Conyers, and distinguished members of the Committee on the Judiciary, thank you for the opportunity to submit this Statement for the Record on this hearing, “Exploring Alternative Solutions on the Internet Sales Tax Issue.” Our company, FedTax, is the proud inventor and operator of TaxCloud, a free online sales tax compliance service now being used by approximately 5,000 online retailers of all sizes. TaxCloud is available at no cost to retailers because we are a Certified Service Provider (CSP) for the twenty-four Member States of the Streamlined Sales and Use Tax Agreement (SSUTA). Our company was founded in 2008 by technology executives with decades of experience building some of the most recognizable brands in e-commerce. At our previous companies we experienced firsthand how difficult sales tax compliance can be, and we made it our mission to make sales tax compliance easy for businesses and more efficient for state and local governments. As we have grown, our executive team has expanded to include payments industry executives as well as nationally recognized sales tax and public policy experts.

In his opening remarks, Chairman Goodlatte named several technology-related fears regarding the Marketplace Fairness Act that we are uniquely qualified to address: technical capabilities of the prescribed free software, integration costs related to the free software, concerns for the direct mail industry, and concerns related to additional audit exposure.

We agree that Chairman Goodlatte’s stated concerns are important, and we are convinced that they can (and should) be addressed.

Background

This testimony is not based upon hypothetical notions or unproven theories. Rather, it is informed by our direct experience as a SSUTA CSP since 2010.

A brief background: SSUTA’s goal is to minimize or eliminate the burdens of sales tax compliance for businesses. Since its inception in 1999, it has sought input from state and local governments as well as the business community through regularly scheduled public meetings.

During its first few years, SSUTA stakeholders publicly debated many different sales tax modernization and simplification schemes (a subset of which have been proposed before the committee today). Ultimately, they agreed on an approach that relied upon modern technologies to accommodate the many nuances and variations in sales tax law across state and local governments.

Over the next few years, the SSUTA states developed the Certified Service Provider program, including the policies, practices, and procedures to be employed by each of the participating states to test and verify that a CSP candidate’s software and/or service adhered not only to SSUTA’s rules (including sourcing, taxability, rounding rules, etc.) but also to each state’s statutes. Today, six companies (including ours) have achieved CSP designation. It should also be noted that achieving CSP designation is not a one-time event but an ongoing process; our systems are regularly tested, verified, and audited by the states to maintain our certified status.

During this time, SSUTA stakeholders also worked with the tax technology group TIGERS[1] to develop standard formats for states to provide open source sales tax rate and jurisdictional boundary data for use by the business community. The work with TIGERS also included the specification and adoption of a Simplified Electronic Return (SER), based upon the widely used e-file format.

The current SSUTA Member States represent more than half of the states with sales and use tax laws, including Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

In these SSUTA states, each of the CSPs already manages all aspects of sales tax compliance for their respective retailers. These responsibilities include:

  1. Calculation of applicable sales tax rates (including state, county, city, and special jurisdictions)
  2. Application of any full or partial product-based exemptions
  3. Capturing any available use-based exemptions
  4. Detailed jurisdictional (and sub-jurisdictional) reporting of sales tax collections
  5. Automated, timely filing of sales tax returns
  6. Automated remittance of sales tax proceeds to applicable jurisdictions
  7. Primary response to any jurisdictional audit inquiries

Technical Capabilities

Some have suggested that systems capable of keeping track of the sales tax laws of over 9,600 jurisdictions simply do not exist, or that the technologies necessary to achieve compliance would be prohibitively costly for small businesses. TaxCloud’s direct work with taxpayers refutes these assertions. It doesn’t matter if there are 9,600 or 96,000 jurisdictions; modern e-commerce systems are adept at easily managing such diversity, as Joe Crosby noted in his testimony before the committee. Businesses do not need to spend enormous quantities of time or resources to achieve compliance.

Integration Costs

Even with free software already available, opponents continue to complain that businesses will be burdened with the costs of integrating such software into their existing systems. This line of argument ignores the reality that all but the very largest retailers (and a few retailers who rely on legacy systems) rely upon pre-written software and/or online hosted platforms for e-commerce and order management. Retailers rely upon these systems to avoid the costs of developing, managing, and maintaining such systems on their own, costs that are magnified by the changing nature of e-commerce, which is constantly responding to evolving cyber-crime threats, payments and security industry best-practices, and, yes, even legislative requirements. When their retailer clients need to collect sales tax, platform vendors will provide ways for them to do so, embedded within the platforms that retailers already use.

E-commerce platform vendors are intensely competitive and focused; they take pride in not only complying with evolving requirements but often surpassing them, occasionally with stunning results. For example, much of the cloud computing infrastructure now transforming every corner of the technology sector can be traced to several of the largest e-commerce companies adapting to comply with the Sarbanes Oxley Act of 2002. There is no reason to believe these e-commerce platform vendors will not respond to action by Congress in an equally competitive manner to provide sales tax management services for their clients. In fact, this process is already underway—almost all of the most widely used e-commerce and order management platforms have already adopted and integrated with one or more CSPs.

Direct Mail Concerns

Some direct mail businesses are concerned that they could be required to include within their mail order catalogs a very long insert with every possible sales tax rate in the country. But mail order catalogs are designed to be mailed to their customers, so each customer’s mailing address can be harnessed to solve this problem. Just as the catalog vendor prints each customer’s address on each catalog, there is no reason they couldn’t print the effective sales tax rate for that specific address right on the mailing label!

Leveraging the address block for other customer-specific data is a technique routinely practiced in the direct mail industry today. Most mail order catalogs already print customer-specific Customer Reference or Quick Service Numbers (usually 5 to 9 characters), which the customer conveys to a sales agent when placing a phone order or enters on the website when placing an online order.

Furthermore, most catalog retailers encourage their customers to place their orders online or by phone; many don’t even offer paper ordering forms any longer. Of course, once a customer “channel shifts” from the printed catalog to an online storefront or telephone order, both of these ordering systems can rely upon free software and services provided by the states to determine the correct sales tax rates and even apply any available item-level exemptions.

If a catalog exemption is to be included, it should be carefully crafted so as not to favor catalog retailers over other remote retailers (or local retailers).

Audit Exposure

Another concern is related to the threat of remote state audits. Under the current CSP system, CSPs, not their retailers, are responsible for responding to audit inquiries. In most cases the CSP already has all of the information necessary to respond to such audit requests, without any effort by the retailer. As this committee considers alternatives to deal with audit concerns, one option is to rely upon the integrity of the states’ CSP certification process and shield any retailer relying upon the services of a CSP from remote state audits.

Important Concepts for Alternative Solutions

FedTax believes that the central tenet of any internet sales tax legislation must be a federal framework based upon the current sales tax structure. Anything else would cause an immense disruption to businesses across the nation.

Some witnesses have asserted that SSUTA’s simplifications are insufficient to remove perceived compliance burdens. We would note that the other solutions that were proposed, such as origin sourcing or an “IFTA-like” home-base proposal, create compliance burdens of their own—and if they choose these options, states would be jettisoning a fully developed, functioning system that has been eliminating compliance burdens for 15 years in favor of an untested, hypothetical system that might take years to create and that businesses and consumers have no experience using.

Disruption of existing business processes by changing to a new system will damage the economy and cause needless delays in solving this pressing problem.

Compliance burdens can be eliminated by requiring states with collection authority to provide retailers with automated technology solutions (including software and/or services) that can manage compliance tasks for all states with collection authority, and that are verified and certified by each such state’s revenue agency to ensure compliance with that state’s sales and use tax laws. In addition:

  • Certified systems must be allowed to file sales tax returns and remit sales tax proceeds on behalf of remote retailers.
  • Certification is necessary for states to have the certainty necessary to grant comprehensive liability relief for remote retailers relying upon such systems.
  • States must be required to certify multiple providers to ensure an open and free market.
  • Providers of certified systems must be compensated by the certifying state to eliminate costs for remote retailers. Such compensation should be paid by the states from the remotely collected sales tax proceeds.
  • Retailers’ reimbursement for expenses related to integration and initial setup costs should be paid by the states from the remotely collected sales tax proceeds.
  • States must provide publicly available electronic (machine-readable) data sources for sales and use tax rates, jurisdictional boundaries, and taxability of goods and services. These data sources must be available for all businesses to rely upon, even those not using a certified system.
  • States must allow certified systems to automatically register businesses in their state.
  • States must support a central registration process to allow remote retailers to register easily and quickly in all states.
  • States must make a single statewide agency responsible for accepting sales tax returns and sales tax proceeds.
  • Recognizing the multichannel nature of modern retail, states must be able to accept multiple (nonduplicative) sales tax returns, possibly one per channel.
  • Destination sourcing must be required for interstate sales. Destination-based sourcing returns the tax collected to the customer’s tax jurisdiction.
  • There must be limitations on audits, such as restricting audits to sellers above a certain threshold, or a consolidated audit, or even exempting retailers that use a Certified Service Providers from audits.

The beauty of this proposal is that this system is in already in place today and it is working. The SSUTA system currently provides proven technology solutions for the thousands of retailers that are already collecting today. Some of the other ideas that have been proposed at the hearing have not been tested and are not currently in use. Forcing states and businesses across the country to adopt radically different systems will create disruption and unnecessary expense.

Why should Congress discard the Streamlined Sales Tax Governing Board, which has been perfected over several years, and replace it with a different structure? A simpler answer would be to give collection authority to all states that meet congressionally mandated minimum simplification requirements and require them to provide technology as listed above to reduce compliance burdens.

We know what works. It is not a single rate. It is not origin sourcing, or any of the other alternatives presented at the hearing. They will simply muddle tax reporting further. Inaction by Congress will encourage states to continue attempts to circumvent Quill and find solutions that may or may not benefit the retail community and may or may not further simplification and uniformity.

What won’t work:

  • Origin sourcing. This scheme shortchanges state and local governments by sending their consumers’ tax dollars to other states and countries. It also would turn jurisdictions with no sales tax into e-commerce havens.
  • Requiring reporting instead of remittance. This scheme is burdensome for businesses and would require entirely new systems at revenue departments to process and respond to such reports. This is a highly inefficient way to collect tax that is owed.
  • Reporting remote sales to a clearinghouse for distribution to states. This increases administrative expenses and replaces one bureaucracy with another—such as creating an IFTA for sales tax.
  • Granting states the power to exclude noncompliant retailers rather than having them collect sales tax. States have enough difficulty tracking down in-state sellers that do not collect sales tax; the process of identifying remote sellers that aren’t collecting and then engaging in a legal process to bar them from selling into the state, is unduly lengthy and litigious, not to mention very unfriendly to businesses.

Dramatically changing the way sales tax works is not a solution. It would be a disruption for both businesses and governments and carries unacceptable costs for both.

The issues cited as barriers for business to collecting—fear of audits by states where the retailer has no locations, exorbitant integration costs for “free” software, catalog sellers, and data privacy—are all easily resolved by legislation. For example, limitations on the frequency of audits and dollar thresholds can reduce audit burden or risk. Audits of remote sellers could be performed by the seller’s home state or by a multistate compact. Legislation should clarify that integration costs should be paid by the states.

Conclusion

The simplest, least expensive, and easiest solution is to require remote retailers to collect the sales tax at the destination and provide the technology to do so at no cost.

We urge the committee to draft a bill reflecting these core concepts and report it favorably to the House of Representatives for action in this session of Congress. Your action would reward the years of effort and cooperation between businesses and states to modernize and simplify sales tax collection and administration while eliminating tax compliance burdens.

Mr. Chairman, thank you for the opportunity to submit this Statement for the Record on this important issue.

R. David L. Campbell
Chief Executive Officer
The Federal Tax Authority, LLC


[1] The Tax Information Interchange Task Group of ANSI ASC X12 was formed in 1991, and initially worked with traditional EDI formats. The Task Group produced X12 standard Transaction Set 813, the generic EDI tax filing, which is still in use today in the Motor Fuel and Sales Tax areas. TIGERS began working with XML in December 2000, and issued its first production schema set in 2003.The task group became “TIGERS” in December 1994, with the realization that technical standards were not enough – states and their partners needed guidance and assistance in turning the standards into actively supported electronic commerce programs. The group broadened its scope to include peer reviews of state technical implementations and mappings, guidance in technical infrastructure for e-commerce, and model documentation for the business rules enforced by the state programs.

E-Fairness Solutions Make Online Sales Tax Quick and Easy

March 18, 2014

FYI: For those of you that didn’t already see it, the following Op-Ed piece by our CEO ran in Politico last week.

Online retailers are a tech-savvy bunch. They seem to know what we want, when we want it—and how to get it to us as quickly as possible. But a few of the same companies that have figured out how to target our shopping habits and ship products of all shapes and sizes around the country are now claiming that collecting sales tax is too hard.

These critics of e-fairness legislation have suggested that private-sector software already widely available for collecting sales tax is incomplete, complicated, and expensive. As an e-commerce entrepreneur for almost two decades, and as cofounder and CEO of TaxCloud, one of several online sales tax management services, I’d like to offer the truth about online sales tax.

The same technologies that enable smartphones also make sales tax calculation quick and easy: At TaxCloud, our software works directly with e-commerce platforms to calculate sales tax during each customer’s checkout. 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. That information is used to calculate the appropriate sales tax in a fraction of a second, just like shipping charges. Don’t be fooled—calculating sales tax is not laborious or burdensome. It’s really quite simple.

Collecting sales tax is not very expensive, either: Software and services that manage sales tax collection aren’t hard to find or expensive; in fact, in some states the service is free. Opponents of an e-fairness solution have made numerous misleading statements about the costs of software, presumably to preserve the preferential treatment they currently enjoy in the tax code. For instance, while publicly railing against the expense associated with online sales tax, eBay actually features a sales tax utility on its own website that costs $15 per month. And many third-party online storefronts or marketplaces can handle sales tax collection for their merchants for a very small fee. The cost of software is simply not an impediment for small online sellers.

Set it and forget it—why software makes it easy: It’s true that any sales tax system will need to know the type of item being purchased in order to determine if it’s tax-exempt. It’s important to remember that bricks-and-mortar sellers have always been required to assign tax classifications to their wares—this is not a new concept or obligation. And here again, the rhetoric does not match reality.

First, most small online stores tend to be specialists—they’re more likely to be selling one class of products than a wide range—and if that’s the case, all a seller needs to do is set their entire store to one tax category. Click—done. Second, even if a small online retailer sells many kinds of items, they would only need to assign categories to tax-exempt items, a small subset of most stores’ inventories. Click, click—done. E-commerce platforms are designed to assign large groups of items to tax categories, so no online seller will spend their time worrying about whether an item is tax-exempt or not. The bottom line is that once these categories are set, online retailers can focus on serving their customers—not on tax collection.

Tax returns aren’t filed by horse and buggy anymore. Despite the oft-repeated claim that compiling and filing sales tax returns with multiple states will create huge burdens and audit risks, the fact is that all of the existing sales tax management services can take this task off an online retailer’s hands entirely. Agreements with individual states let these services handle filing returns and remitting tax proceeds, without any effort from the retailer themselves. Most of these services also store all returns associated with your account, so accessing past records is a breeze.

Twenty years ago, opponents of remote or online sales tax collection were correct—collecting sales tax was rather laborious and time-consuming. But the same burst in technology that now allows consumers to shop anywhere, anytime, and have whatever they want delivered to their door in under twenty-four hours, also makes charging sales tax remarkably simple. For online stores, collecting sales tax is easier than configuring shipping charges. “Doom and gloom” predictions about the technology are misplaced—and any suggestion that sales tax management systems don’t already exist is simply wrong.

If Congress believes that online retailers should be exempt from the same laws and tax policies that every other business complies with, that is of course their right. But they shouldn’t make that determination based on the misguided and misleading rhetoric spun by those who stand to benefit from special treatment. And if Congress chooses to end the current disparity and treat all retailers equally, rest assured that the free market has already developed the tools and software necessary for both online sellers and brick-and-mortar retailers to thrive and grow in the decades ahead.


Eliminating the costs associated with online sales tax

July 25, 2013
TaxCloud

TaxCloud: Sales Tax at the Speed of Commerce

One of the most frequent concerns we hear from online retailers about collecting sales tax is that it will simply be too costly. We’ve heard estimates that range up to $400,000 per year—which is insane. We don’t think that anyone should have to spend that kind of money simply to collect sales tax.

In fact, we don’t think that anyone should have to spend money to collect sales tax, full stop. That’s why we created TaxCloud, to give online retailers a free way to manage sales tax. Instead of charging to use TaxCloud, we receive a commission from states based on the amount of sales tax we help retailers collect.

That’s also why the Marketplace Fairness Act requires states to provide free sales tax software for retailers.

But even with the promise of free sales tax software and services, concerns about costs remain. Nothing is really free, the argument goes; there must be hidden costs somewhere.

So let’s look at the most common arguments we hear on why collecting sales tax online would be too expensive.

Keep in mind, we can only speak to how TaxCloud works, so all the information here pertains to TaxCloud and not to any other sales tax management software or service.

Training employees to use sales tax software is costly and time-consuming. TaxCloud was designed to be easy for anyone to use. From registration to going live takes as little twenty minutes. What’s more, once TaxCloud is activated for a store, there’s next to no upkeep. If we’re filing the store’s sales tax returns, we ask that they review their returns once a month. Other than that, retailers don’t need to think about it—they can just set it up and forget it. There’s no training involved, and anyone who can manage an online store won’t have any trouble using TaxCloud.

Necessary software upgrades cost money. Because TaxCloud is a real-time web service, not software that’s uploaded or downloaded, there are no upgrades. Tax rates are updated and new features are added behind the scenes, so retailers see those results automatically, without doing anything extra. And as always, there’s no charge for the service at all.

It’s too expensive to hire developers to set up software to work with existing systems. TaxCloud is integrated directly with the e-commerce platforms that most online retailers use to run their shops. That means that our developers work with the platform’s developers to make TaxCloud available to users. Retailers using e-commerce platforms that are integrated with TaxCloud don’t need to hire their own developers. If your e-commerce platform doesn’t support TaxCloud yet, then call them and ask when TaxCloud will be available—TaxCloud is free for platforms as well.

We’d have to hire an accounting staff just to keep track of everything. This is the beauty of sales tax management services: It’s all automated. There’s no need to calculate anything, or look up sales tax rates, or fill out sales tax returns, or even write a check to remit the sales tax that’s been collected. TaxCloud handles all of that.

We completely agree that there shouldn’t be any compliance costs associated with online sales tax, and we’ve worked hard to create a free service that handles every aspect of sales tax for retailers. Cost simply shouldn’t be a factor, and with TaxCloud, it isn’t.


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.


Small sellers: What does $1 million in sales look like?

March 19, 2013

There has been a lot of talk lately about the “small seller exception” in the Marketplace Fairness Act, which was introduced last month. The bill says that small sellers don’t have to collect sales tax on online purchases, and it defines “small seller” as a merchant with less than $1 million in annual remote sales.

Some opponents say this threshold is still too low, though—that a seller with $1 million in annual remote sales is too small to handle sales tax.

So, what does a seller making $1 million in remote sales look like? Here a few examples.

Bottled Water

You wold have to sell 166,000 cases of water per yearLet’s say an online retailer is selling 0.5-liter bottles of water in cases of 24. At $6 per case, $1 million is equal to 166,667 cases of bottled water, enough to fill 125 fifty-three-foot tractor-trailer trucks.* That means that if you were selling $1 million worth of bottled water in a year to out-of-state buyers, then you would shipping out an entire truck of full of bottled water approximately every three days.

125 trucks

Shoes

ShoesAssuming the average price of shoes is $50 per pair, $1 million is equal to 20,000 pairs of shoes. To make $1 million selling shoes in one year to out-of-state buyers, you’d need to sell about 55 pairs of shoes per day, every day, for an entire year.55 Pairs of Shoes sold each day

Digital Goods

Angry Birds Star Wars AppMany apps go for about $1 each, so to earn $1 million selling apps, you need to sell at least 1 million apps. To sell 1 million apps in a single year, you’d have to sell 2,739 per day to out-of-state buyers, or slightly less than 2 per minute, every minute, for an entire year.

Conclusion

Any business selling at these volumes must be using some sort of e-commerce platform or order management system, and these systems can be easily updated to provide access to free sales tax management services.


truck*A 53-foot tractor-trailer has approximately 4,000 cubic feet of carrying capacity, with a maximum cargo weight of approximately 50,000 pounds.


TaxCloud in the news!

October 11, 2012

TaxCloudWe’re happy to report that TaxCloud and FedTax have been in the news quite a bit lately.

An end to the free online tax ride nears: In this ComputerWorld article, TaxCloud user Ken Knezek, owner of Bandals Southwest, talks about how his small company has handled online sales tax

What the end of tax-free online shopping means for small businesses: Our CEO, R. David L. Campbell, was interviewed for this Reuters article on how small businesses will be affected by online sales tax

How you can prepare to collect online sales tax: And in an article in Independent Retailer, David offers some tips for online retailers who are thinking about starting to collect sales tax

It’s great to see so much attention being paid to the practicalities of what online sales tax really means for online retailers. As we move closer to federal legislation on the issue, we hope to see more articles like these!


Taxation without representation?

August 16, 2012

Since Senator Jim DeMint’s July 31 op-ed in the Wall Street Journal asserted that online sales tax collection is taxation without representation, we’ve been seeing this argument repeated all over the media. Even thoughtful articles that are trying to look at the topic objectively seem to be taken in by this red herring.

So what’s the truth about online sales tax and taxation without representation?

The three bills currently before Congress that call for online sales tax collection, including the Marketplace Fairness Act, require that that sales tax is destination-based. That means that the sales tax is applied based on where the consumer, not the store, is located. Why? Because consumers are the ones paying the tax, so they should a) get to vote on what the sales tax rate is and b) benefit from the services funded by sales tax.

In other words, if you live in Vermont and make a purchase from an online store located in California, you would pay Vermont sales tax. The store in California would collect the sales tax just as a local store would and remit it back to Vermont, where it would help to pay for police and fire departments, public roads, schools, libraries, and more. And as a resident of Vermont (or any state with sales tax), you have the opportunity to vote on the local sales tax rate and elect the state and local representatives who help administrate sales tax. Which means that destination-based sales tax is taxation with representation, despite what Senator DeMint said.

What’s the other option? Origin-based sales tax. This means that no matter where the customer is located, the sales tax is applied based on where the online store is located. If you live in Vermont and make a purchase from an online store based in California, you’d pay California sales tax that is remitted to California. Where, as a Vermont resident, you have no say in the sales tax rate, cannot vote for state and local representatives, and do not benefit from the services that sales tax helps fund.

In other words, it’s taxation without representation. It’s also, for our money, simply wrong—when you pay sales tax, you should benefit from the roads, schools, parks, and more that it funds.

What a good thing that none of the bills before Congress suggest that origin-based sales tax is the way to go.

So who is supporting origin-based sales tax (taxation without representation)? Ironically, it’s Senator Jim DeMint, along with Adam Thierer, a senior research fellow at the Mercatus Center at George Mason University, and others. Both Senator DeMint and Mr. Thierer have written editorials attacking destination-based sales tax as taxation without representation and proposing that origin-based sales tax is best.

But the facts just don’t hold up.

We’re not saying that there’s no reason to support origin-based sales tax. There is: It’s easier for online shops to apply just one sales tax rate, based on their own location, instead of applying various rates based on their customers’ locations. They also would get to remit all the sales tax on purchases made at their store to their own state, rather than sending it back to the state where the customer, who paid the tax, resides.

But let’s not kid ourselves. Origin-based sales tax is taxation without representation.

Destination-based sales tax—the kind proposed in the Marketplace Fairness Act—is not.