Internet retailers will have to collect sales tax, with or without the Marketplace Fairness Act

May 23, 2013

Among opponents of the Marketplace Fairness Act, there is a sense that if they succeed in blocking the bill, online retailers won’t have to collect sales tax.

Not so.

First, online retailers already have to collect sales tax for any state where they have nexus, defined as a physical presence. Warehouses and offices definitely fit the requirement, but some states also require any retailer selling at a fair or convention to collect sales tax.

More importantly, states can pass their own online sales tax laws. While the Supreme Court’s ruling in Quill v. North Dakota says that states can only require retailers with nexus to collect sales tax, states have been pushing against the edges of that ruling for some time by redefining “nexus.”

Affiliate nexus laws have been perhaps states’ most popular tool. These laws redefine “nexus” to include any retailer with a marketing affiliate located in the state. New York famously used an affiliate nexus law to get Amazon to collect New York sales tax, and with the court’s March ruling that the law can stand, more and more states are following its lead—most recently Kansas and New Mexico. West Virginia has gone even further by saying that having an individual perform services or solicit business in the state also qualifies a retailer for nexus. What is meant by “services” and “solicit” has yet to be defined.

The use of a drop shipper can also trigger a requirement to collect sales tax. If a customer and drop shipper are located in the same state, sales tax must be collected on the purchase—no matter where the retailer is located.

States are hurting for funds, and they aren’t going to ignore the $11 billion in sales tax that a University of Tennessee study found is going uncollected. If federal legislation doesn’t pass, they will continue to enact their own laws, increasing the number of retailers with nexus in the state and who therefore must collect sales tax.

Unfortunately for retailers, that means a nationwide patchwork of sales tax laws to navigate, all with varying requirements and definitions.

The Marketplace Fairness Act, in contrast, requires states to simplify and standardize their sales tax rules, so it will be easier for a retailer to collect sales tax for multiple states. And with this legislation in place, states will have no reason to pass their own laws aimed at getting online retailers to collect sales tax.


Amazon makes a deal with Indiana. Who’s next?

January 24, 2012

Indiana has been a member of the Streamlined Sales and Use Tax Agreement (SSUTA) since 2005, so we here at FedTax were surprised when we heard that affiliate nexus legislation (sometimes called “Amazon tax”) was being proposed there (H.B. 1119). Regular readers of this blog know that affiliate nexus laws expand the definition of nexus to include affiliate marketers— locally based websites that provide marketing for out-of-state merchants. Affiliate nexus laws are generally ineffective because, time, and time, and time,  and time again the impacted e-commerce retailers have demonstrated their willingness to sever ties with their in-state affiliates so they can avoid being singled-out as the only remote retailers being required to collect.

We were very pleased when we learned this was not going to happen in Indiana.  Governor Mitch Daniels announced that Amazon has agreed to begin collecting sales tax in Indiana in 2014—or even sooner if Congress enacts guiding legislation, like the Marketplace Fairness Act  (S.1832). In exchange, the Indiana legislature will not advance the proposed affiliate nexus legislation. As an additional benefit, the Indiana-based Simon Property Group (the largest shopping mall owner in the U.S.)  has agreed to suspend its lawsuit against the Indiana Department of Revenue over its failure to require Amazon to collect sales tax despite its three distribution warehouses in the state. Governor Daniels said that Indiana is the 4th state with such a tax collection agreement with Amazon, joining California, Tennessee, and South Carolina.

Now even more states are considering similar legislation. We do not intend to hatch a conspiracy theory, but some could draw the conclusion that these bills are being used as an indirect method of “requesting” that Amazon open distribution centers in their state. We hope Congress will act soon to end all this craziness.


Michigan becomes latest state to consider affiliate nexus legislation

September 29, 2011
Michgan State Capitol

MLive: Michigan becomes latest state to consider affiliate nexus legislation

Michigan has become the latest state to consider affiliate nexus legislation, according to this article on MLive.com. Although the state bill (HB 5004) is being referred to by the Michigan media and even several of its sponsors as “the Main Street Fairness Act”, it is completely different from the federal bill of the same name, introduced in July by Senator Dick Durbin.

The state bill would require online retailers with affiliates in Michigan to collect sales tax.

The federal bill, on the other hand, would not affect affiliates at all. It would authorize states that have simplified their sales tax laws—as already Michigan has—to require all online retailers, regardless of location, to collect sales tax.

The reasons for supporting online sales tax collection make a lot of sense:

“We are trying to level the playing field for Michigan retail businesses,” said Barb Stein, owner of Great Northern Trading in downtown Rockford. “We want to make sure that anybody that sells something in Michigan subject to sales tax has to collect it, including Internet retailers.”

Stein was part of the press conference Tuesday unveiling the proposed Michigan Main Street Fairness Act, co-authored by state Reps. Eileen Kowall, R-White Lake Township, and Jim Ananich, D-Flint.

Closing the loophole could save the state $141.5 million in lost sales tax revenue, generate as much as $126 million in additional sales and lead to the creation of 1,600 jobs,according to a report released last week by Lansing-based Public Sector Consultants.

“The uneven playing field reduces economic activity across the state and prevents small businesses in Michigan from adding jobs,” said Sikkema, a senior policy fellow at the nonpartisan think tank and a former Republican House minority leader from Grandville.

But the federal Main Street Fairness Act would have all these benefits without the drawbacks of the recent rash of state-by-state “affiliate nexus” or so-called “Amazon tax” bills. Retailers usually respond to state affiliate nexus bills by dropping their affiliates in the state, which means the in-state affiliates have to either move out of state or face an enormous drop in income. What’s more, these bills have repeatedly proven not to bring an increase in sales tax revenue—they’re simply ineffective.

There’s a terrific editorial in favor of the Michigan bill that laments the fact that state affiliate nexus laws are necessary, that Congress hasn’t yet passed the federal Main Street Fairness Act:

Michigan businesses have struggled enough without politicians adding to their troubles. Yet the burden they’ve faced in recent years has not been relieved by a simple measure Congress could take. Congress could have empowered states to collect taxes on remote sales made to their citizens — sales over the Internet and through catalogues. E-commerce in particular has become an increasingly common way to do business. . . .

Jobs that could have been created in our local communities will not be created, because bricks-and-mortar retailers in Michigan operate at a disadvantage against their virtual rivals. If e-tailers can spare their customers the 6 percent sales tax, main street stores get undercut on price, especially where large purchases are concerned.

With Congress failing to act, members of the state legislature are going to take another run at it this important question. Tuesday, state Reps. Eileen Kowall, R-White Lake Township, and Jim Ananich, D-Flint, introduced the Main Street Fairness Act.

The act would level the playing field between in-state retailers — who pay taxes and employ people in Michigan — and remote retailers who do not. The bills should be passed by lawmakers.

The greatest irony is, Michigan has already done all the work needed and enacted laws necessary to simplify its sales tax laws in accordance with the Streamlined Sales and Use Tax Agreement. The federal Main Street Fairness Act requires states to do this before they can mandate all online retailers to collect sales tax. So Michigan has already made sales tax collection easier for businesses and is poised to benefit from the federal legislation as soon as it is passed by Congress—but the state legislators still feel the need to look at affiliate nexus legislation because right now it’s the state’s only recourse to get at uncollected online sales tax revenue without Congress taking action. Hopefully Congress will soon pass the already pending Main Street Fairness Act, so Michigan is not forced to enact H.B. 5004 and inadvertently hurt its thousands of affiliate marketing businesses.

We understand why Michigan is considering affiliate nexus legislation, but the state would do better to put its full support behind the federal Main Street Fairness Act. It’s better for everyone—states, affiliates, online retailers, and consumers.


Governor Brown signs Amazon compromise bill into law

September 23, 2011
Governor Jerry Brown

Governor Jerry Brown

Breaking news: California Governor Jerry Brown has signed into law Assembly Bill 155, a bill that represents a compromise between Amazon.com and California lawmakers.

We’ve blogged about Amazon’s objection to California’s affiliate nexus law, which required online retailers with affiliates in the state to collect sales tax. Since the law was enacted in July, Amazon had been collecting signatures to put a referendum on the law on California’s next ballot. But earlier this month California lawmakers and Amazon reached a compromise that takes that referendum off the ballot and puts the affiliate nexus law on hold until September 2012.

The idea behind the postponement is that it gives time for Congress to pass the Main Street Fairness Act—and for California lawmakers and Amazon to work together to help get it passed.

We’re thrilled that Governor Brown has signed the compromise bill into law. With the affiliate nexus law on hold, we expect Amazon and other online retailers to resume its relationships with California affiliates, which means that 25,000 affiliates will no longer face the choice of losing their income or moving out of state.

And of course, as our regular readers know, we’ve always supported the Main Street Fairness Act as a much better option than state-by-state affiliate nexus laws. It doesn’t hurt affiliates, unlike the state laws, and it actually makes collecting sales tax easier for online retailers—it authorizes only states that have simplified their sales tax laws to require online retailers to collect sales tax.

And then, the main objection that online retailers have to the Main Street Fairness Act—that collecting sales tax for multiple states is too difficult—simply isn’t true, not any more. Technology has reached the point that collecting sales tax is no more difficult for online retailers than calculating shipping rates, something every online retailer does. (More information on myths and facts about the Main Street Fairness Act is available here.)

We applaud Governor Brown for signing AB 155 into law. It’s practical, bipartisan legislation that is supported by both Republicans and Democrats in the California legislature and ultimately serves the interests of both online retailers and California residents.


Florida business groups inspired by California-Amazon deal

September 19, 2011

According to a Sarasota Herald-Tribune (FL) article, Florida business groups are hopeful that the deal between California legislators and Amazon—which repeals California’s online sales tax collection law in exchange for the reinstatement of Amazon’s 10,000 California affiliates and requires both groups to work together for the passage of the federal Main Street Fairness Act; if the federal bill doesn’t pass by the end of July 2012, the California law will be reinstated—will “help convince [Florida] lawmakers to take similar steps”:

Mark Wilson, president of the Florida Chamber of Commerce and a member of the Florida Alliance for Main Street Fairness, saw the California deal as a positive sign for Florida retailers.

“If Amazon can collect and remit sales taxes in California, it can do it [in] Florida,” Wilson said. “Recently, both Texas and California passed E-fairness legislation to level the playing field for small businesses. Now, Amazon’s agreement to collect sales tax in California — just like Main Street retailers — proves that they don’t need a special tax deal at the expense of Florida-based small businesses either.”

Wilson said Florida lawmakers now have “a unique opportunity to put small business job-creation ahead of Amazon’s tax subsidies.”

While Wilson has a point—I don’t think anyone would argue that it’s too difficult for Amazon to collect Florida sales tax (especially with services like TaxCloud available)—Amazon has good reasons to support federal online sales tax collection legislation (the Main Street Fairness Act) and oppose state-by-state laws. While the Main Street Fairness Act would actually make it easier for businesses to collect sales tax, state-by-state laws have become so numerous and varied that they make it extremely difficult for businesses to collect sales tax in more than one state.

One way that the Main Street Fairness Act makes it easier for businesses to collect sales tax is by authorizing online sales tax collection only in those states that have simplified their sales tax laws by joining the Streamlined Sales and Use Tax Agreement (SSUTA).

Although Florida’s recent bill to join SSUTA stalled, we would urge Florida lawmakers to pass that bill, and soon. Not only will it make it easier for businesses to collect Florida sales tax, but it will also put Florida in the perfect position to require all online retailers to collect sales tax when the Main Street Fairness Act—which now has the full support of California and Amazon behind it—becomes law.

Joining SSUTA will also make it clear to Congress that Florida, like California and Amazon, supports the Main Street Fairness Act.

Many states have been tempted to skip the step of joining SSUTA and go straight to requiring some online retailers (mostly large ones, like Amazon) to collect sales tax. California started out taking that approach. But as California and other states have discovered, that approach ends up hurting businesses, which have to deal with all the complexities of state-by-state sales tax laws, and in-state affiliate marketers, which are usually dropped by retailers so that the retailer can try to avoid collecting state sales tax. The end result is fewer jobs in the state and no increase in collected sales tax.

Joining SSUTA is the better approach. It simplifies sales tax collection for businesses while leveling the playing field between online and Main Street retailers. We hope this is the approach Florida decides to take.


California’s latest twist in sales tax battle will hurt local retailers in favor of a certain online auction site

August 27, 2011
Los Angeles Times

Los Angeles Times: New online sales tax legislation

According to a Los Angeles Times article, the next move in the battle over California’s online sales tax collection law comes from supporters:

A coalition of giant, brick-and-mortar retailers and their legislative allies have come up with a new strategy to try to head off Amazon.com’s referendum to overturn the state’s new Internet sales tax law.

On Thursday, lawmakers amended a bill in the Senate Appropriations Committee and sent it to the full Senate for a vote next week. If the bill gains approval from the Senate, the state Assembly and the governor, its passage would have the effect of nullifying Amazon’s current drive to qualify a referendum for the June 2012 budget.

To recap the situation thus far: A law requiring online retailers with California affiliates to collect sales tax went into effect on July 1. Amazon immediately dropped its affiliates in California, and on July 8 the company filed a petition to put a referendum to repeal the law on the ballot, for California voters to decide on. The petition was approved, and since then Amazon has been campaigning to collect the 505,000 signatures needed to put the referendum on the ballot.

And  now it seems that supporters of California’s legislation have made the latest move. According to the LA Times, “Passage of a new law would supersede the old law, making the referendum invalid.”

Apparently the new bill raises the small seller exception—where the previous law exempted online retailers with less than $500,000 in annual remote sales from collecting sales tax, the new one raises that threshold to $1 million. That change was enough to get a certain online auction company to drop its opposition to the law, so legislators are more optimistic about its chances.

Believe it our not, this latest escalation of the small seller exception is as dramatic as it is surprising. The economic impact of this change will be significant, however the lawmakers in Sacramento seem to have glossed over that fact:

…add an urgency clause, and increase the small business exemption from $500,000 to $1 million. Staff notes that BOE does not track micro-level data on affiliates that may be subject to the exemption, so the fiscal impact related to increasing the threshold in indeterminable. (emphasis added)

Are they serious? They think it’s indeterminable? Affiliates have nothing to do with the revenue collection, it’s the retailers that collect, not the affiliates. This statement is pure misdirection. I expect Ms. Betty Yee and quite a few analysts at the Board of Equalization would dispute that they could not calculate the loss of revenue, and the legislature should immediately review some of their recent findings on the subject (like this and this).

This amendment blatantly discriminates against small local main street retailers who are not afforded any such exception—proper tax policy should treat all retailers and taxpayers equally. Surely there are a few local retailers who would love to not have to collect the sales tax on their first $1 million in sales. For a bit of perspective on this matter, let’s listen to Amazon’s own Mr. Paul Misener in his testimony before the United States House of Representatives in 2006

To be sure, no one expects truly small businesses to do the work of sales tax collection alone but that doesn’t mean they shouldn’t be required to do it at all. By analogy we require small business persons to sign their legal documents in ink but we don’t expect them to make their own ballpoint pens.

Amazon.com will offer sales tax collection services to our small seller customers. I am sure that our on-line competitors also can and will. Of course, this discussion so far as been limited to small businesses conducting interstate sales. What about small main street businesses selling locally? Even after a decade of e-commerce, as Brian [Bieron of eBay] has pointed out, still over 90 percent of retail sales are off line.

Small main street businesses already collect sales tax and, thus, have both the administrative burden of tax collection and the higher prices caused by it. If out of state small businesses would not have to collect, then their main street brethren would be saddled with a competitive disadvantage both as to burden and price. Hopefully policy makers never would conclude that this disparity would be fair to main street small businesses. (emphasis added)

We couldn’t agree more.

We continue to believe that all this contentiousness is unnecessary. Energy would be better spent on federal legislation on online sales tax collection—which Amazon and lawmakers support. It solves many other problems, too. To quote from ourselves:

As states such as California and Illinois enact affiliate nexus legislation (so-called Amazon tax laws) to attempt to collect sales tax due on online purchases, small businesses across the country are being caught in the crossfire. Affiliate marketers are forced to either find entirely new sources of revenue or flee to another state. Meanwhile, online retailers that rely on affiliate marketing are forced to either eliminate their established sales and marketing teams or come into compliance with the new laws.

The better solution is the anticipated Main Street Fairness Act, which incorporates the Streamlined Sales and Use Tax Agreement (SSUTA). SSUTA streamlines and simplifies state sales tax regulations, making it easy for retailers to collect sales tax for multiple states. SSUTA is the cooperative effort of 44 states (including California and Illinois), businesses, political leaders, and industry associations. States that adopt SSUTA have committed to make sales tax collection easier for all retailers, online and offline, large and small.

We hope that the Main Street Fairness Act will soon make these state battles moot. It’s the best solution for all.


Small businesses call for federal legislation on online sales tax

July 19, 2011
FOR IMMEDIATE RELEASE

Small Businesses Call for Federal Legislation on Online Sales Tax

Anticipated Main Street Fairness Act Will Protect Small Businesses from Ineffective State Laws

Seattle, Washington – July 19, 2011 – FedTax® announced today that it joins its TaxCloud® merchants in urging Congress to enact the Main Street Fairness Act (MSFA). The MSFA will authorize states that have simplified their sales tax systems to require online retailers to collect sales tax. The simplification and standardization of sales tax laws will benefit all retailers, and the MSFA will encourage states to follow through with such simplification.

As states such as California and Illinois enact affiliate nexus legislation (so-called Amazon tax laws) to attempt to collect sales tax due on online purchases, small businesses across the country are being caught in the crossfire. Affiliate marketers are forced to either find entirely new sources of revenue or flee to another state. Meanwhile, online retailers that rely on affiliate marketing are forced to either eliminate their established sales and marketing teams or come into compliance with the new laws.

The better solution is the anticipated Main Street Fairness Act, which incorporates the Streamlined Sales and Use Tax Agreement (SSUTA). SSUTA streamlines and simplifies state sales tax regulations, making it easy for retailers to collect sales tax for multiple states. SSUTA is the cooperative effort of 44 states (including California and Illinois), businesses, political leaders, and industry associations. States that adopt SSUTA have committed to make sales tax collection easier for all retailers, online and offline, large and small.

“The Main Street Fairness Act will protect small businesses across the country from the varied state-by-state efforts that are ineffective and are hurting small businesses. Only Congress has the authority to regulate interstate commerce,” said David Campbell, CEO of FedTax. “Our free TaxCloud service is an easy-to-use system now being relied upon by more than 750 small businesses to manage their local sales tax obligations and fully comply with SSUTA as well as the anticipated federal legislation.”

Sten Wilson, a TaxCloud merchant and owner of Point of View Farm, a small sheep farm in upstate New York, said, “There’s a misconception that the Main Street Fairness Act is bad for small businesses, when it’s absolutely not. I can say from my own experience that without this service, managing sales tax compliance in multiple states used to be very complicated—I’m all for legislation that gives states a reason to make collecting sales tax easier.”

The Main Street Fairness Act would ultimately benefit everyone: large and small businesses alike, both local and online, would find it easier to collect and remit sales tax; affiliate marketers would no longer be threatened by state legislation and retailers that use affiliate marketing would be able to continue doing so; and states would benefit from much-needed revenue that funds vital services, without having to resort to controversial affiliate nexus laws.

About FedTax
FedTax makes it easy for businesses to calculate, collect, and remit sales tax. It was founded by e-commerce veterans with extensive experience in large-scale internet services. The management team has been directly involved in building some of the most recognizable brands on the internet, including Google, American Express, Microsoft, and Expedia.

FedTax has been designated a Certified Service Provider by the Streamlined Sales Tax Governing Board. The company’s free TaxCloud service enables businesses to calculate and remit sales tax across the country. TaxCloud can be easily integrated into most accounting, order management, and e-commerce shopping cart systems.

FedTax is headquartered in Seattle and has offices in Connecticut and Kansas.

FedTax Contact:
Daniela Saunders
SVP Marketing
dsaunders (at ) fedtax.net
+1 203-803-2048

View a PDF of this Press Release


California Attorney General says… OK

July 19, 2011

California’s Attorney General has allowed Amazon’s proposed referendum to repeal ABX1 28.

The title:

“REFERENDUM TO OVERTURN LAW REQUIRING INTERNET RETAILERS TO COLLECT SAME SALES OR USE TAXES AS OTHER RETAILERS”

Wow, this should be interesting…


New York Times: Amazon takes on California

July 14, 2011
The New York Times: Amazon Takes on California

The New York Times: Amazon Takes on California

The New York Times just published an article covering the AMZN proposed referendum to repeal ABX1 28.

One part, which we are now investigating, really caught our eye:

Amazon said this week that it would push a voter initiative in California that could eliminate sales tax for virtual sellers with only a modest physical presence in the state. (emphasis added)

We hope that the voters of California don’t get tricked into thinking the referendum would actually repeal the sales tax itself. Regardless of the outcome of this proposed referendum, if a “virtual seller” refuses to collect sales tax, consumers will still owe it—just as they have in California since 1935 (no, that is not a typo).

All-in-all, it is a well-written and thorough piece, but we wish the writers had pointed out the fact that with federal legislation, such as the much anticipated Main Street Fairness Act (MSFA), states could legitimately repeal affiliate nexus laws (no voter referendum necessary) while simultaneously generating significantly more revenue. This is because the MSFA would authorize states (those that have simplified their sales tax laws by adopting SSUTA guidelines) to compel remote retailers to collect sales tax at the time of the transaction. This would allow states to collect the approximately $23 billion in sales tax that goes uncollected each year (nearly $1.7 billion in California alone).

We will let you know what we learn about the “eliminate sales tax” quote.


LA Times: Jobs are key in the online sales tax argument

July 13, 2011
Los Angeles Times

Los Angeles Times: Amazon sales tax battle centers on jobs

A Los Angeles Times article examines the Amazon proposed referendum on California’s affiliate nexus legislation and what it calls the “escalating rivalry between Amazon and bricks-and-mortar retailers, which have seen an increasing portion of their sales go to the Internet.”

It has an efficient summary of each side’s argument; unsurprisingly in this economy, both focus on jobs:

Those conventional retailers say they are at a disadvantage because consumers perceive that they don’t have to pay sales taxes on Internet purchases, in effect giving buyers a discount of nearly 10%.

The stores also point out that they provide jobs — to salespeople, clerks, cashiers and more — and that California can ill afford to give a tax amnesty to Internet retailers that operate elsewhere.

“Amazon’s continued disregard of the law has cost this state over 18,000 lost jobs and a $4.1-billion loss in sales resulting in over $7 billion in lost economic activity in 2010 alone,” the California Retailers Assn. trade group said. “Their actions will continue to harm our schools, police, fire and the tens of thousands of small businesses who provide jobs and invest in our state every day.”

For its part, Amazon emphasized the jobs issue by saying that the new law has forced it to sever ties to 10,000 affiliates in California who are paid commissions to steer buyers to Amazon’s site by click-through links on their sites.

By cutting off California affiliates, the company hopes to avoid the key criterion — some presence in the state — that would make it subject to collecting sales taxes.

“This referendum effort is a vehicle for affiliate marketers to continue to do business in California, which translates to real income for the state as these businesses pay their income tax, employment tax plus other tax,” said Rebecca Madigan, executive director of Performance Marketing Assn., a trade group for affiliates. Amazon would not comment, instead referring to her statement.

And what are the referendum’s chances attracting the 500,000+ signatures required to get on the ballot? Then, what are the chances of it passing? According to the article, both sides have a strong case:

When it comes to jobs, mega-retailers Wal-Mart Stores Inc., Target Corp. and scores of others can make a stronger argument than Amazon. But experts cautioned not to count out Amazon, as well as consumers’ own greed in wanting to shave taxes of 7.25% or more off their final prices — even though they legally owe that money.

There’s also a terrific exploration of how—and why—online sales are growing and sales tax revenue is shrinking.

We hope that the voters of California don’t get tricked into thinking the referendum would actually repeal the sales tax itself. Regardless of the outcome, the sales tax will still be owed by the consumers, just as it has been in California since 1935 (no, that is not a typo).

The article is definitely worth reading—go check it out for yourself.


Amazon files for referendum on California affiliate nexus legislation

July 12, 2011

ANOTHER UPDATE (7/12/2011 @ 2 PM EDT): Internet Retailer just published a detailed article about this too.

UPDATE (7/11/2011 @ 10 PM EDT): The Financial Times and The Wall Street Journal just ran an article about this too.

Last Friday, July 8, Amazon filed a petition for a referendum on California’s recently passed affiliate nexus legislation, which requires online companies with California affiliates to collect California sales tax. The referendum would put the decision on whether to enact the legislation in the hands of California voters.

This AP article has more, although details are yet to come.

To be clear: The referendum would not give voters the opportunity to determine whether or not sales tax is due on online purchases. Sales tax has always been due on online purchases and it still is; the California legislation simply changed how it is collected. Before, consumers were responsible for sending the tax due directly to the state. With the legislation, online retailers themselves—at least, those with California affiliates—are responsible for collecting and remitting the tax.

As we’ve always said, federal legislation is the better solution—it allows states to collect existing sales tax without hurting affiliates or targeting online retailers that use affiliates. When Congress finally acts to pass federal legislation, state legislation won’t be necessary, and online retailers will be free to resume their affiliate relationships without fear of a discriminatory tax collection law singling them out.

Amazon supports federal legislation, as do we. We hope that it will be enacted soon, ending the feud over California’s legislation.


StorefrontBacktalk: It’s up to Congress

July 7, 2011

A new article in StorefrontBacktalk gives a very thorough and balanced background on online sales tax collection, framed by a discussion of California’s new affiliate nexus legislation.

The article ends by saying that it’s up to Congress to settle the issue, not states:

Ultimately, it will be up to Congress to decide how it wants state sales taxes to be collected on out-of-state sales. In fact, in the Quill decision two decades ago, the Supreme Court invited Congress to step in, and assumed that it would. . . .

Whether states can use affiliate marketing as a “hook” to force the payment of sales tax is only a short-term issue. We will wait for Congress to act. Or not.

We absolutely agree: We need federal legislation, not state-by-state laws, to determine how retailers collect sales tax. And in fact, we expect Congress to act soon—the Main Street Fairness Act is likely to be introduced this summer.

The benefits of federal legislation like the Main Street Fairness Act are many, but in particular, it’s a better solution than the affiliate nexus laws so many states are enacting because it wouldn’t hurt the small businesses that rely on affiliate income. (When California passed its affiliate nexus legislation, Amazon immediately canceled their 25,000 affiliate relationships in the state—which means 25,000 affiliates suddenly lost their income.) In fact, the Main Street Fairness Act would actually provide an incentive for states to make it easier for small businesses to collect sales tax for multiple states.

The Main Street Fairness Act would allow only those states that have adopted the simplification measures of the Streamlined Sales and Use Tax Agreement (SSUTA) to require all retailers to collect sales tax. SSUTA simplifies and standardizes sales tax regulations to make it easy for retailers to collect sales tax for multiple states—which means that the Main Street Fairness Act gives states an incentive to make multistate sales tax collection easy for retailers.

The Main Street Fairness Act is the right solution for everyone involved:

  • states, which need to recover the billions of dollars in sales tax currently going uncollected
  • retailers, which need their sales tax collection obligations to be standardized and predictable, without damaging small businesses
  • consumers, who should no longer be expected to keep track of and report the sales tax due on every internet purchase (you have been doing that, right?)

We look forward to congressional action soon to introduce and pass the Main Street Fairness Act.


Macy’s VP voices support for Streamlined, federal legislation

July 7, 2011
Bay Area BizTalk

Bay Area BizTalk: Amazon Tax

In a Bay Area BizTalk post on the San Francisco Business Times website, Macy’s vice president and tax counsel Frank Julian voices his support for the Streamlined Sales and Use Tax Agreement (without mentioning it by name) and federal legislation on online sales tax:

“The state-by-state approach we think is the wrong way to address this…. It doesn’t bring about the simplification and uniformity we think is critical,” said Frank Julian, vice president and tax counsel at Macy’s Inc. “We would support congressional legislation that brings about simplification, uniformity and vendor compensation in exchange for making all sellers collect tax, but it has to do all of that. It has to be a package. You can’t take one side of the equation without the other.”

Make no mistake, Macy’s and most small retailers who now count Amazon as competition want the giant online retailers to pay sales tax — it’s only fair and levels the playing field, they say. But to work and to be constitutional, it must be done through federal legislation, and it must at the same time make it easier and more economical to collect sales tax.

We couldn’t agree more. And Amazon CEO Jeff Bezos has said much the same thing.

The article also includes a good illustration of why streamlining and simplification is so desperately needed:

Consider that every city and county in California has a different tax rate. Then consider that in some states a Snickers is considered — and thus taxed as — a candy bar while a Nestle Crunch bar is not considered candy because it contains rice. Some states tax fruit juices differently based on just how much fruit is in the drink, and not all states tax clothing.

The Streamlined Sales and Use Tax Agreement (SSUTA) eliminates all that complexity and makes it much easier for retailers to collect sales tax for multiple states. Federal legislation, in the form of the Main Street Fairness Act, would provide an incentive for states to join SSUTA and ease the burden on retailers.

The rest of the article is also worth reading for its analysis of what online sales tax collection means for both big box retailers and mom-and-pop stores; we highly suggest you check it out.

We do have to disagree with one conclusion the article draws: that collecting sales tax for multiple states is too difficult for small online retailers.

Yes, we need the simplification provided by SSUTA. But for small online retailers worried about the potential costs of collecting sales tax, we have just one word: TaxCloud.

We created TaxCloud especially for those small retailers without the resources of an Amazon or Walmart who are faced with collecting sales tax and wondering how they can do it. We’ve made it easy and, perhaps even more important, we’ve made it completely free.

Once again, we have to hope that Congress hears this voice of support for Streamlined and federal legislation. The recent passage of affiliate nexus legislation in California has brought the issue to the forefront of the national conversation. It’s time for Congress to listen to that conversation and finally take action.


Tennessee Governor Bill Haslam urges Congress to pass federal legislation on online sales tax

July 6, 2011
Tennessee Gov. Bill Haslam willing to take lead on Internet sales tax

Tennessee Gov. Bill Haslam willing to take lead on Internet sales tax

Tennessee Governor Bill Haslam (R) said today that he is willing take the lead among the nation’s governors in urging Congress to pass federal legislation on online sales tax. The full details can be found in an article in the Memphis-based newspaper The Commercial Appeal.

He said Tennessee is already losing between $300 million and $500 million a year on untaxed Internet sales — a growing number since the states and Congress have been unable for more than a decade to agree on a “streamlined sales tax” process enabling online retailers to collect taxes easily for the nation’s thousands of state and local taxing jurisdictions.

“It’s not going to begin eroding the state’s tax base; it already is. Something has to happen nationally. The whole streamlined sales tax is a big deal, and I’m more than willing to play a leadership role,” Haslam said. “It has to be addressed on a national level or we’re going to keep playing these kinds of move-around games.”

We’re thrilled to see Gov. Haslam step forward and take the lead on the issue.

As our regular readers are well aware, more and more states (like California) are striking out on their own to try and solve this problem by enacting affiliate nexus legislation. There is clearly a need to recover the sales tax revenue currently going uncollected while also eliminating the blatant disparity of tax policy between local and online retailers. But these state-by-state solutions all have problems—only federal legislation can bring back uncollected sales tax revenue, level the playing field for local and online retailers, and make collecting sales tax easier for retailers.

The Streamlined Sales and Use Tax Agreement (SSUTA), which the governor refers to, simplifies and standardizes sales tax regulations to make it easier for retailers to collect sales tax for multiple states. The Main Street Fairness Act will authorize only those states (24 so far) that have adopted the simplification measures of SSUTA to require all retailers to collect their sales tax.

Governor Haslam has made it very clear that he supports federal legislation embodied by the much-anticipated Main Street Fairness Act. We have also heard similar supportive statements and outright pleas from other governors this year as well. We will start a separate post to detail the complete list—in the meantime, way to go Governor Haslam and Tennessee!


SFGate: The next step for California

July 5, 2011
SFGate

SFGate: What's next for California sales tax collection

A new column on SFGate.com, the San Francisco Chronicle website, speculates on what’s next for online retailers and state legislators now that California has passed affiliate nexus legislation.

The author points out that neither Amazon nor Overstock—both of which immediately dropped their California affiliates upon the bill’s passage—are currently collecting California sales tax, even though the new law has gone into effect. How will the state respond? According to Betty Yee, a member of California’s Board of Equalization:

“So, we’ll bill them at the end of this quarter, based on estimates either they provide or we come up from other data sources. Then, if they don’t come forward and pay, we’ll consider other courses of action.”

It seems pretty unlikely that they’ll “come forward and pay,” and according to the article, litigation is likely the next step. In fact, Amazon is currently in the middle of a lawsuit challenging New York’s affiliate nexus law—which has, thus far, been upheld.

One could argue, of course, that because they’ve dropped their California affiliates, Amazon and Overstock no longer have nexus in the state. However, Amazon, at least, has subsidiaries with offices in the state, such as Lab126 in Cupertino, which designed the Kindle. Under the California law, those subsidiary locations may be sufficient to establish nexus for Amazon—a matter that now seems destined to be determined by the courts.

Unless, that is, federal legislation renders the question moot. Our favorite part of the column is the section with the header, “Over to you, D.C.” We’ve long argued that federal legislation is the best solution for both states and retailers, and we’re happy to see that on that, at least, everyone seems to agree:

If there’s one thing both sides of the online tax fight appear to agree on, it’s the need for the feds to step in.

“What we’re trying to do is to get Washington to clarify nexus, and revise the Quill decision,” said [Bill] Dombrowski, [president of the California Retailers Association] who is also a board member of the National Retail Federation.

“The right way to fix this is with federal legislation,” Amazon CEO Jeff Bezos said in an interview with Consumer Reports in May. Bezos said his company has long favored an across-the-board “streamlined sales tax initiative,” an idea offered up a decade ago by the National Governors Association, and which 24 states (not, as yet, including California or New York) have signed on to.

The column discusses the Main Street Fairness Act specifically, although we think the description is a bit misleading:

Under Durbin’s bill, “all businesses must collect state sales tax on all purchases, whether or not the business has a physical presence in that state … but based on where the buyer is located,” he said, announcing the proposed legislation earlier this year.

What that brief description doesn’t mention:

  1. The bill doesn’t allow every state to require out-of-state businesses to collect sales tax—just those states that have made it easy for businesses to collect their applicable sales tax by adopting the Streamlined Sales and Use Tax Agreement (SSUTA) guidelines.
  2. The bill lets states decide on their own whether to join SSUTA in order to gain the authority to compel out-of-state retailers to collect their sales tax.

But that aside, the column offers a good overview of the current situation in both California and the nation at large. We can’t include here all the details it includes on the response to California’s new law, so we suggest you go read the entire thing yourself.