Storefront Backtalk asks: “Where are the consumer advocates?”

April 11, 2011

This post in the StorefrontBacktalk blog ponders why there have been no consumer advocacy groups fighting against affiliate nexus laws. The answer, though, is contained in the post:

Rightly or wrongly (OK, it’s wrongly), consumers in those states have been avoiding paying state sales tax.

It would seem to me that a consumer advocacy group would be hard-pressed to make a pitch that says, in effect, “don’t take away a citizen’s right to evade taxes.”

Instead, the debate continues to focus on the issue of fairness—whether it is fair that only bricks-and-mortar retailers collect the tax, and whether it is fair to ask online retailers to calculate and collect the tax.

Today large online retailers easily manage millions of items for sale at any given moment, and even the smallest online retailer can calculate accurate shipping rates to every corner of the country in a blink of an eye. It is no longer too difficult to keep track of a few thousand tax jurisdictions.

What’s more, comprehensive sales tax management services are available—for free—making it even easier to calculate sales tax online. TaxCloud calculates the sales tax due for any purchase anywhere in the country. It is certified to comply with the Streamlined Sales and Use Tax Agreement (SSUTA) and can therefore also prepare, file, and remit sales tax for states that are members of SSUTA. The service is completely free to retailers.

Perhaps another reason consumer groups are shying away from the debate is because it is local community services that are losing out on uncollected sales tax as more shopping shifts online.

What does surprise me, though, is that the Performance Marketing Association and other groups that support the affiliates have not been coming out in favor of Streamlined and federal legislation that would require ALL online retailers, not just those who sell through affiliates, to collect and remit sales tax.

Florida measure to join SSUTA passes Senate

April 6, 2011

According to an article in the Orlando Sentinel, the Florida State Senate has passed a measure that would allow Florida to join the Streamlined Sales and Use Tax Agreement (SSUTA). We blogged about the introduction of the measure here.

The author of the article spoke to the sole senator who voted against the measure:

Sen. Anitere Flores, R-Miami, the sole vote against the measure in the Senate Commerce and Tourism Committee, said she was uncomfortable voting for the bill because it was adding another tax to Floridians.

This is a frequent misconception. We’re happy to reassure Sen. Flores that joining SSUTA does not mean creating a new tax or raising existing taxes.

Sales tax is already due on most online purchases; when the online retailer doesn’t collect it, by law the consumer is supposed to calculate the correct amount of tax due and send it to the state with their tax returns. In practice, however, few consumers do. Estimates are that last year alone, uncollected sales tax on online purchases in Florida reached $608.2 million.

By joining SSUTA, Florida would lay the groundwork for requiring all online retailers to collect sales tax. Although collecting sales tax is voluntary right now for online retailers without a physical presence in the state, federal legislation is in the works that would allow all SSUTA member states to require online retailers to collect sales tax.

Becoming a SSUTA member state is also the first step toward leveling the playing field for local Florida retailers, which have to collect sales tax while online retailers don’t. In addition, joining SSUTA would send a message to Washington, DC, that it’s time for federal legislation that allows states to require all online retailers to collect sales tax.

We’re excited that the Florida Senate has approved the measure, and we hope to hear soon that the House has, too!

Small business owners testify in Texas

March 29, 2011
The Statesman: Small business owners testify in Texas

The Statesman: Small business owners testify in Texas

An article in The Statesman (Texas) describes a meeting of the Texas House Ways and Means Committee, which is considering how best to deal with the issue of online sales tax—a particularly sensitive issue in the state because of Amazon’s threat to close its warehouse there rather than collect sales tax for Texas, as it is required to if it has a physical presence in the state.

What we found most interesting was the testimony of small business owners before the committee:

Gregg Burger , general manager at Precision Camera in Austin, said his store last year had $17 million in sales and collected $1.5 million in sales tax. He estimated that Precision Camera loses about $5 million per year in sales to online retailers.

This is the first time we’ve seen a number that indicates just how much money local retailers are losing to online retailers, and it’s not a small number—it works out to about 30% of the store’s annual sales.

The testimony got emotional at times, showing just how important the issue is to local small business owners:

“We are losing tons and tons of business out of the state,” Burger said. “We are losing millions of dollars by letting out-of-state competitors take our jobs and our money. We want to collect the tax. Please, please, let’s get this through.”

The article also describes a pending bill that would “amend the state tax code to say that a company can’t be classified as a retailer required to collect sales tax if it, or a subsidiary, operates or uses “only a fulfillment center … or a computer server” in Texas. Clearly, it’s intended to allow Amazon to keep its fulfillment center in Texas open without having to collect sales tax for Texas.

But the bill contradicts the Supreme Court ruling that says a retailer with a physical presence in a state must collect sales tax for that state. Should the it pass, we predict that we’ll see court challenges and appeals that will prevent it from being enacted.

We also found a quote by the author of the bill, Rep. Linda Harper-Brown, interesting. The article quotes her as saying that “she is working ‘to make sure there’s balance in the bill to avoid hurting “mom-and-pop” businesses but not create more problems for Amazon.’ ”

By saying she’s working to avoid hurting mom-and-pop businesses with her bill, she’s implicitly acknowledging that they are hurt when online retailers avoid collecting sales tax—if they weren’t, she wouldn’t have to work to avoid hurting them.

We’re glad to see that word is getting out: when online retailers don’t have to collect sales tax, it hurts local retailers who do. Let’s level the playing field and require all retailers, online and off, to collect sales tax.

Virginia newspaper calls for sales tax fairness

March 25, 2011

Yesterday’s editorial in the Newport News Daily Press came out strongly in favor of requiring all retailers to collect the local sales tax that is due on purchases. The editors state:  “It makes absolutely no sense that if you buy the latest best-seller at your local bookstore, you pay sales tax—say, $1 on a $20 book. Buy the same book on, and you pay no sales tax.”

The argument about fairness is always framed in terms of the retailer—i.e., is it fair that an online retailer does not have to collect sales tax when a bricks-and-mortar retailer does? This editorial puts a new twist on the fairness issue, asking whether it is fair that one resident pays sales tax on an item when his neighbor, who buys the same item online, does not.

Bricks and mortar retailers add more than bricks and mortar to the state. They add jobs—sales clerks, managers, warehouse workers, drivers, etc. Many of them also contribute to their community, both tangibles and intangibles. The online bookstore isn’t the one that hosts story time for local children and readings by local poets. The online retailer isn’t the one that donates supplies for a civic group’s community service project. The manager at an online site isn’t the individual who helps a high school strengthen its vocational programs and get businesses involved, as the former manager of Patrick Henry Mall, Roger Brown, did for many years. Closing this loophole will, collectively, benefit taxpayers. It’s costing states billions of dollars in sales tax revenue. If they could collect it, they could reduce the pressure on income and other taxes.

The writer closes by suggesting a “uniform national sales tax” on online purchases. Although that’s not possible, for numerous reasons, a standard set of sales tax rules, policies, and procedures has been under development by 44 states and the business community for over ten years—the Streamlined Sales and Use Tax Agreement.

Unlike the author, we believe Congress is finally willing to level the playing field for online and offline retailers alike, and we expect the introduction of the Main Street Fairness Act soon.

The mechanics of online sales tax

March 22, 2011

As the argument that online retailers should collect sales tax has been gaining steam, some people have begun wondering about the mechanics of online sales tax collection. Exactly how would it work? What would an online retailer—especially one smaller than Amazon and big-box retailers—need to do to collect sales tax for all 13,000 tax jurisdictions in the country?

The Streamlined Sales Tax initiative has provided the first part of the answer. It’s worked to reduce the costs and complexities of collecting sales tax for retailers and states alike, particularly for retailers that collect sales tax for multiple states. It does this by creating standard tax categories and definitions that every Streamlined member state must adopt—so that, for instance, a candy apple would be in the tax category “candy” in every member state, instead of being considered candy in one state and fruit in another. The actual tax rate isn’t affected—each state still decides on its own the applicable rate and whether items are taxable or exempt—but the standardization and simplification Streamlined provides means that retailers have a much easier time collecting sales tax for multiple states.

But the simplification that Streamlined provides is only part of the answer. The other part of the answer is technology, which is essential to keep track of the 13,000+ tax codes in the country. Technology providers have stepped in with software and services that provide various levels of sales tax management.

Recognizing the key role technology (and, therefore, technology providers) plays in collecting sales tax online, the Streamlined Sales Tax Governing Board established a certification process whereby technology providers have their systems tested and verified by each of the Streamlined member states. Upon successful completion of this process, these companies earn the title of “Certified Service Provider” (CSP) and are authorized to perform all of the sales tax functions for companies. Due to the logistical complexity of the certification process (it takes about a year of coordinated efforts among all member states to certify a CSP), companies may apply to become CSPs only during a brief application period every other year.

FedTax was designated a CSP on July 1, 2010. We are currently the only CSP that is providing its services at absolutely no cost to merchants.

As a Certified Service Provider, we handle every aspect of sales tax calculation, collection, and remittance for our clients. Our TaxCloud service calculates, in real time, the sales tax due on any transaction. It determines whether an item is tax-exempt, manages entity exemption certificates, and automatically integrates changes and updates to tax codes, rates, and jurisdictions—for every jurisdiction in the nation. Finally, TaxCloud keeps track of all collected sales taxes to be remitted by retailers , generates and files all state-by-state sales tax returns, and remits tax payments to all applicable jurisdictions.

What’s more, TaxCloud is extremely easy for anyone to use. Most retailers are able to set up TaxCloud in less than 20 minutes, and it can be integrated into virtually any accounting or e-commerce shopping cart system.

Because we are a CSP, we take full responsibility for any state audit requests on behalf of our TaxCloud clients. In addition, as a CSP we are compensated by SSUTA-participating states, so we can provide TaxCloud to retailers for free. In short, we’re offering a service that handles all sales tax management obligations for retailers at absolutely no cost.

If you’d like to learn more about TaxCloud, check it out here.

State legislators call on Congress to act!

March 18, 2011
National Conference of State Legislators

National Conference of State Legislators

The National Conference of State Legislators (NCSL) today published a 2012 budget resolution calling on Congress to act in closing the loophole on sales tax collection.  The resolution states:

Congress should pass the Main Street Fairness Act, to be sponsored by Senators Durbin and Enzi. This legislation will allow states to collect sales taxes legally imposed on their residents but not collected by out of state sellers. Passage of the Main Street Fairness Act would create a level and fair playing field among all sellers, ensure the survival of America’s main streets and provide states $23 billion without any offsets or funds from the U.S. Treasury.

The NCSL is a bipartisan organization that serves the legislators and staffs of the nation’s 50 states, commonwealths, and territories. It is an effective and respected advocate for the interests of state governments before Congress and federal agencies. The leadership of NCSL is composed of legislators and staff from across the country.

This resolution confirms our belief that the Main Street Fairness Act will be introduced shortly and, with support lined up, will pass this year.

New York Times on the “Amazon tax”

March 14, 2011
The New York Times: Amazon Pressured on Sales Tax

The New York Times: Amazon Pressured on Sales Tax

Have you seen the front page of the New York Times business section? It has an article on the growing number of states that have or are considering affiliate nexus, or “Amazon tax,” legislation.

It’s great to see the “paper of record” picking up on the increasing momentum for online sales tax legislation around the country. Although it focuses on Amazon and its background with affiliate nexus laws, the article also includes a brief but thorough background on online sales tax and nexus.

As always, we applaud states’ efforts to collect the sales tax they’re due, but we continue to believe that a federal Main Street Fairness Act is the best solution for everyone. We’re glad to see that Amazon feels that way, too:

Despite its protests to collecting the sales tax, Amazon supports a streamlined system simplifying the current hodgepodge of state and local levies. But a streamlined system, which has the support of two dozen states, requires Congressional action.

“Amazon’s multi-state sales tax battles are a sideshow to the real national solution…”

March 11, 2011

This article by Curt Woodward, senior editor of Xconomy Seattle, points out that the best long-term solution to the problem of uncollected sales tax is for states to join the Streamlined Sales Tax effort and for the federal government to enact legislation such as the Main Street Fairness Act.

The volley of lawsuits, rhetoric from fired-up tax collectors, and Amazon’s hardball response tactics are certainly entertaining to watch from afar. But any real resolution will almost certainly come from a much more boring, slow-moving effort to get state sales taxes on a common source code, and then change the federal laws.

The article goes on to highlight Washington State’s efforts on behalf of the Streamlined Sales and Use Tax Agreement (SSUTA). In fact, it was Washington’s decision to join SSUTA that spurred FedTax’s founders to create TaxCloud, our free, easy-to-use tax calculation and remittance service.

TaxCloud is the only service designed specifically to comply with SSUTA at a scale that supports all online retailers. TaxCloud is easy for retailers to integrate with their current systems—from sign-up to tax collection takes just 20 minutes.

Affiliate nexus law enacted in Illinois

March 11, 2011
Wall Street Journal: Amazon Takes Action in Illinois as War on Sales Taxes Continues

Wall Street Journal: Amazon Takes Action in Illinois as War on Sales Taxes Continues

Today’s decision by Illinois governor Pat Quinn to sign HB 3659, affiliate nexus legislation, confirms that states are willing to try anything to narrow the budget gaps they face. The drawbacks to such legislation are well-known: loss of income for affiliates and the potential for extensive litigation (as New York has been experiencing for the past three years).

Amazon has already announced its decision to cancel its relationships with Illinois affiliates, as reported in this Wall Street Journal article. Other online retailers are expected to follow suit.

The bright spot for Illinois-based affiliates is that other large retailers—those who already collect sales tax online due to their brick-and-mortar presence—have offered to step in. Barnes & Noble, Wal-Mart, Best Buy, and Sears are among the retailers that have reached out to Illinois affiliates. Also, the Stand with Main Street organization has begun a new “matchmaking” service to pair affiliate marketers that have been dropped by Amazon with other retailers.

We hope Illinois will soon join its neighboring states and join the Streamlined Sales and Use Tax Agreement (SSUTA). Illinois senator Dick Durbin is expected to introduce the Main Street Fairness Act in Congress any day now. Once enacted, that law will enable SSUTA states to require online retailers to collect the sales tax that is already due on all online purchases.

LA Times covers the debate over internet sales tax

March 11, 2011
Los Angeles Times: California legislation would tighten rules on Internet sales tax

Los Angeles Times: California legislation would tighten rules on Internet sales tax

This comprehensive LA Times article by Marc Lifsher covers all sides of the internet sales tax debate—the estimated $1.7  billion in uncollected sales tax for California, the concerns of brick-and-mortar retailers who lose sales to online retailers, and the worries of California-based websites that will lose revenue if Amazon (and others) pull affiliate relationships from the state if AB 153, the affiliate nexus legislation, passes. The Main Street Fairness Act, which will be introduced in Congress in the coming weeks, would give California a way to collect this revenue without incurring the collateral damage to local website operators that affiliate nexus laws can cause.

Cardozo Law School professor: “Amazon laws are neither a practical nor a legal solution”

March 8, 2011

This well-written article on the Oxford University Press blog gives a compelling view of the legal and practical problems with the affiliate nexus laws that have been passed (or are being considered) in many states.  The author covers the practical and legal drawbacks to these laws, makes a compelling argument that the affiliate nexus model is not sustainable, and ends with a call to Congress to solve the problem once and for all with sound federal legislation.

We understand why states are enacting these laws—to recoup the sales tax revenue that has been disappearing as shoppers turn to internet retailers. However, we believe this approach creates more problems than it solves (as the article explains), and there is a better solution: the Main Street Fairness Act. Not only does it avoid the problems of affiliate nexus legislation, it also levels the playing field between local retailers that have to collect sales tax and online retailers that don’t.

North Carolina settles with ACLU

February 10, 2011

The ACLU announced yesterday, February 9, that it had settled its case against the North Carolina Department of Revenue over the customer purchase information released by Amazon in response to a DOR request.  More information is contained in this Daily Tech article.

Amazon itself filed a similar suit against North Carolina. As we blogged about the ruling in that case last October, the decision was not a clear victory for Amazon. The court ruled that North Carolina has the right to ask Amazon for general information about customer purchases, but not for specific purchase information, such as the titles of books bought by an individual.  The court also ruled that North Carolina can pursue Amazon for the sales tax that was justly due to the state.  This statement from Beth Stevenson of the North Carolina Department of Revenue explains the fundamentals of the case:

“The case between the North Carolina Department of Revenue and Amazon has long been twisted into something it is not,” said Beth Stevenson, spokeswoman for the North Carolina Department of Revenue. “Bottom line, this is about fairly collecting the tax that is due to the state of North Carolina and nothing more. The Department has always maintained that we do not need—or wanttitles or similar details about products purchased by Amazon customers. The department voluntarily destroyed the detailed information that Amazon unnecessarily provided and offered them the opportunity to comply with the state tax laws moving forward.

“The lawsuit on this particular issue could have been avoided altogether if not for the aggressive stance Amazon took to avoid compliance with North Carolina’s tax laws. There would have never been an issue of customer privacy if Amazon would simply collect the North Carolina sales tax that others already do.”

It’s not surprising that North Carolina is trying its best to collect the sales tax that is due on those purchases. This article from Storefront Backtalk says that only 6% of North Carolinians took advantage of North Carolina’s eTail sales tax amnesty program last year.

The Streamlined Sales and Use Tax Agreement (SSUTA)—of which North Carolina is a member—in conjunction with federal legislation such as the Main Street Fairness Act, will eliminate the need for states to craft individual strategies to collect the taxes that are already due them.

Florida joins the list of states that have introduced Streamlined legislation

February 1, 2011

Florida representative Michelle Rehwinkel Vasilinda has introduced HB 455, legislation to conform to the Streamlined Sales and Use Tax Agreement (SSUTA).  The legislation would take effect on January 1, 2012.  This is great news for the Streamlined effort, Florida being one of the larger states.

If passed, Florida’s action on Streamlined will help the state recover an estimated $1.5 billion in uncollected sales tax in 2012.  More information on that estimate—and the estimated amounts of uncollected sales tax for other states—can be found at the National Conference of State Legislators (NCSL) website.

So, a summary of all of the activity related to collecting the sales tax due on internet purchases:

States that have introduced new Streamlined legislation this year:  Alabama, Connecticut, Idaho, Missouri, and Florida

States that have introduced affiliate nexus legislation this year:  Illinois, California, Connecticut, New Mexico, and Mississippi

Twenty-four states are already members of SSUTA.  Six more states have SSUTA legislation under consideration.  Five more (I’m not double-counting Connecticut) are considering legislation to take a different approach to collecting tax on internet sales.

Three more states are meeting resistance to their existing efforts to collect taxes using a non-Streamlined approach (New York is in litigation with Amazon and Overstock over its affiliate law; North Carolina lost a judicial decision over receiving detailed purchase information from Amazon; and Colorado was recently prevented from enforcing its notification and reporting laws while a lawsuit by Amazon and Overstock moves forward).

Seems like we have reached a tipping point—enough states are jumping into the fray to make instituting Streamlined the most sensible solution to the problem of uncollected sales tax.

Federal judge agrees to block Colorado’s reporting and notification law

January 27, 2011

A federal judge has granted a request to block Colorado’s sales tax reporting and notification law. That law,  HB 1193, covers purchases made from out-of-state retailers. It states that online retailers with over $100,000 in sales to Colorado customers must notify Colorado consumers that use tax is due on their out-of-state purchases. The notice is to be posted on the retailer’s website and on invoices. The law also requires out-of-state retailers that have over $1 million in annual sales into Colorado to mail a 1099-like notice at year-end to consumers who have spent more than $500 at the retailer.

The injunction granted yesterday was in response to a request by the Direct Marketing Association to have the law suspended while they try to get it overturned. This article from the Colorado Statesman, dated July 9, 2010, explains the basis for the DMA’s lawsuit and highlights some of the privacy concerns raised by Colorado’s law.

The Streamlined Sales and Use Tax Agreement (SSUTA) would eliminate the need for states to pass disparate laws, such as this one, that invite litigation. Instead, a federal law such as the Main Street Fairness Act would enable all states that conform to SSUTA to simply require out-of-state retailers to collect and remit the sales tax that is already due on purchases by in-state consumers.

New Mexico and Mississippi join the list of states considering affiliate nexus legislation

January 25, 2011

New Mexico representative Eleanor Chavez introduced HB 102, affiliate nexus tax legislation, on January 20, 2011. It expands the definition of “engaging in business” in New Mexico as follows:

C. A person with a business with no physical presence in New Mexico is presumed to be engaging in business in New Mexico and has nexus with the state for purposes of due process and interstate commerce if:

(1) that person enters into an agreement with an affiliate physically present in New Mexico, for a commission or other consideration, to directly or indirectly refer potential customers, whether by link or an internet web site or otherwise, to that person; and

(2) the cumulative gross receipts from sales by that person to customers physically present in New Mexico who are referred to that person by all affiliates with an agreement described in this subsection are in excess of ten thousand dollars ($10,000) during the preceding twelve-month period ending on June 30 of any year.

D. The presumption of nexus established in Subsection C of this section may be rebutted by proof that the affiliate made no solicitation in the state that would satisfy the nexus requirements of the United States constitution on behalf of the person presumed to be engaging in business in New Mexico.

In Mississippi, HB 363 was proposed by Representative Jessica Sibley Upshaw. The bill’s description is:  Use tax; provide that person soliciting remote sales through representatives in this state is subject to use tax. Specifically, “A person is presumed to be soliciting or transacting business by an independent contractor, agent, or other representative if the person enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, to the person.”

The list of states considering affiliate nexus tax legislation is growing longer—evidence that, absent federal legislation, states are willing to take matters into their own hands to increase the collection of sales tax due on internet transactions. It also seems that the general level of knowledge about the issues—and about the pros and cons of various approaches—is increasing. Recent editorials in two Chicago newspapers (the Tribune and the State Journal-Register) highlighted the affiliate nexus legislation passed by the Illinois House and Senate—and both pointed out the shortcomings of this type of legislation and the need for a federal solution.