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

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