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.


US online retail continues 17% to 20% year-over-year growth!

May 11, 2012

Today turned out to be an unusually interesting day for three reasons.

First, the U.S. Census Bureau released its latest E-Stats Report for FYE 2010 today, which revealed that online retail reached $169 billion for all of 2010. The Census Bureau data point does not include online auctions or marketplaces. If you add in eBay’s 2010 U.S. Gross Merchandise Volume (GMV) of $20.4 billion, total online retail could be estimated at approximately $190 billion for FYE 2010. The E-Stats Report also includes preliminary estimates for online retail in 2011 of approximately $194.3 billion. Once again, if you add eBay’s 2011 GMV of $22.8 billion, total online retail could be estimated at approximately $217 billion for FYE 2011.

Second, today comScore released Q1 online retail statistics, which say that online spending in the U.S. reached $44.3 billion (excluding auctions), an increase of 17% over last year. Interestingly, comScore will be hosting a free webinar to review their data in detail—including recent trends toward “showrooming” (in which a buyer goes to a bricks-and-mortar store to compare different items, then leaves the store and purchases online to avoid sales tax).

Finally, today Internet Retailer released their annual Top 500 Guide. As usual, Amazon tops the list with $48 billion in sales.

An interesting data point in the annual ranking includes the dramatic range in revenue from the top of the list to the bottom. At number 500 is Summit Sports with just under $15 million (0.00024% of eBay’s sales volume).

We have always thought it notable that eBay is not included in this list. We understand that as a marketplace operator, they are not the direct retailer; rather, they aggregate millions of sellers under one roof. However, if eBay were included on the list, based upon only their marketplace and GSI business units (excluding PayPal), they would beat even Amazon with $62 billion in GMV in 2011 (worldwide).

Here’s an interesting observation about the census and Internet Retailer data. The total online commerce represented in the Top 500 list—which, you’ll remember, ends with a retailer that had just under $15 million in sales in 2011—was $150 billion in 2010. However, the census data reports $190 billion for 2010. That year, the retailer at the bottom of the Top 500 list was MagnetStreet with $11 million. Since the census figure includes all retailers while the Top 500 figure includes only retailers with more than $11 million in annual sales in 2011, we now know how much businesses with less than $11 million in annual sales generated together in 2010.

In other words, because it didn’t count businesses with less than $11 million in annual sales in 2010, the Top 500 list only accounted for $150 billion in total ecommerce sales in 2010 instead of $190 billion.

That’s $40 billion in ecommerce being transacted by merchants with less than $11 million in annual sales! It’s also important to remember that the IR Top 500 Guide is not restricted to US sales but includes all sales worldwide. So there could be considerably more than $40 billion in ecommerce that’s still under the radar.

There are a lot of conclusions that could be drawn from this, but we’ll save those discussions for another post at a later date.


FedTax Statement Submitted for the Record of the Senate Finance Committee (in support of Marketplace Fairness Act)

April 26, 2012

[Download PDF of FedTax Statement]

Statement Submitted for the Record to

The United States Senate Committee on Finance

Full Committee Hearing

Tax Reform and What It Means for

State and Local Tax and Fiscal Policy

April 25, 2012

 Dirksen Senate Office Building

Washington, DC 20510-6200

Attn:  Editorial and Document Section

Rm. SD-219

Statement submitted by

R. David L. Campbell[i]

Chief Executive Officer

and

Joan Wagnon[ii]

Executive Vice President

The Federal Tax Authority, LLC

162 East Avenue

Norwalk, CT. 06851-5715

Alexander Hamilton wrote in The Federalist in 1788 that “individual States should possess an independent and uncontrollable authority to raise their own revenues for the support of their own wants.”

Today the discussion about state sovereignty over matters of taxation continues unabated. State revenue directors have seen firsthand how the actions of the federal government have affected state and local revenues. Members of Congress are increasingly bombarded by requests for action because state laws are restrictive to business or seen as unfair. There are any numbers of examples where congressional action has been beneficial or harmful to states.

But the issue that has been most devastating to state and local government has resulted from Congressional inaction, rather than action: the failure of Congress to overturn Quill v North Dakota.[iii] 

The Marketplace Fairness Act (MFA), S. 1832, sponsored by a bipartisan group of senators (Enzi, Durbin, Alexander, et. al.) is a good solution to the revenue problems of states, but more importantly, it gives states a better mechanism than they have now to collect the taxes they already levy.[iv]

The MFA also corrects a growing imbalance between groups of retailers. Under the current court ruling, tax is collected on some sales and not on other sales of the exact same items. Why should tax be collected on a book or camera purchased from a local business and not on an identical item purchased from a mail order or internet business?

Remote sales are growing at double digit rates.[v] However, states’ inability to collect sales tax on these sales results in the erosion of the states’ tax bases. Certainly this unfairness is not the hallmark of good tax policy! Congress is creating winners and losers among the retail community by its inaction.

Opponents cite two specific reasons for allowing this unfair situation to continue: a) that remote collection would be overly burdensome and complex, and b) that any systems necessary for remote collection would be prohibitively costly. This testimony will provide technical information for Congress to consider when evaluating those arguments.

I.       The Complexity Argument

Technology has advanced considerably since the 1967 and 1992 Supreme Court rulings that created the current sales tax situation. Even the more recent of these, Quill, occurred before the first graphical browser was invented, before most homes had internet connections, and long before e-commerce forever changed the retail landscape. Today, forty-five years after Bellas Hess and twenty years after Quill, online marketplaces and auction sites easily manage millions of items for sale at any given moment.

Today, keeping track of a few thousand local tax rates and filing requirements is not an insurmountable technical, administrative, or financial burden. TaxCloud, the sales tax management system created by FedTax, proves this point by calculating and collecting sales tax on any purchase for any tax jurisdiction in the United States in less than one second. The service is free to all retailers.

The technologies necessary to create such a system are not new; they are well-established. In fact, they are currently being used throughout e-commerce. They are Application Programming Interfaces and Web Services. An Application Programming Interface (API) allows dissimilar and unrelated systems to communicate with each other using pre-established syntax and structure. Web Services allow APIs to be used for machine-to-machine interactions over the internet. Both are now commonly used in e-commerce—for example, in real-time-shipping, which allows a retailer to provide its customers with accurate, real-time quotes for shipping costs based on at least five variables, including weight, size, delivery speed, origin, and destination. Often customers can even compare shipping costs among multiple shippers.

With APIs, Web Services, and other technological advances of the past twenty years, it is now possible for remote retailers to easily keep track of every state’s tax laws. 

To minimize or completely eliminate the undue burdens cited in Bellas Hess and Quill, more than half of the states with sales tax have worked together for twelve years to create the Streamlined Sales and Use Tax Agreement (SSUTA). These states provide free rates and boundaries databases for all of their respective taxing jurisdictions, and regularly issue updates when rules, rates, or boundaries change. In addition these states also certify and pay for software and service providers to manage sales tax compliance on behalf of retailers.[vi] The Marketplace Fairness Act requires that any states seeking remote collection authority shall comply with SSUTA or provide comparable rates and boundaries information as well as certified software and services that retailers can rely upon to achieve compliance with minimal burden.[vii]

Ironically, those who argue most strenuously that remote collection would be too complex are a few large online businesses that already rely on these same technologies every day, in every transaction. The plain fact is that online retailers operate the largest marketplaces in the world by relying on technology to simplify and automate a host of historically burdensome chores, including payment automation, location-specific marketing, personalized recommendations, and even Duties and Value Added Tax management for foreign governments.

II.        The Costs-of-Compliance or Undue Burden Argument

Opponents also argue that even if technology can solve the technical burden of keeping track of rates, jurisdictions, and filing complexities, such software would be prohibitively costly, particularly for small businesses. TaxCloud is provided to retailers at no cost—so the argument that such software would be prohibitively costly should be flatly disregarded. However, the costs-of-compliance argument also maintains that even if the software is free, businesses will still be burdened with the cost of integrating such software into their existing systems.

This line of argument ignores the reality that all but the very largest retailers rely upon pre-written software and/or online hosted platforms for e-commerce and order management. Retailers rely upon these systems to avoid the costs of developing, managing, and maintaining such systems on their own, costs that are magnified by the changing nature of e-commerce. It is no secret that e-commerce is constantly changing to respond to evolving cyber-crime threats, payments and security industry best-practices, and, yes, legislative requirements. When their retailer clients need to collect sales tax, platform vendors will provide ways for them to do so, embedded within the platforms that retailers already use.

E-commerce platform vendors are intensely competitive and focused; they take pride in not only complying with evolving requirements but often surpassing them, occasionally with stunning results. For example, much of the cloud computing infrastructure now transforming every corner of the technology sector can be traced to several of the largest e-commerce companies adapting to comply with the Sarbanes Oxley Act of 2002. Most platforms already provide basic sales tax management features for their clients. Upon enactment of MFA, these existing systems will quickly be adapted to ensure compliance.

To conclude, modern technology has made it easy for retailers to collect sales tax for any state in the U.S. TaxCloud enables retailers of any size to easily collect sales tax and comply with the provisions of The Marketplace Fairness Act—for free. More information is available at TaxCloud.net.

And in addition to TaxCloud, five other companies are certified by the Streamlined Sales Tax Governing Board and ready to assist when Congress authorizes collection—and no doubt hundreds more will emerge soon after legislation is passed, because the free-market system will provide the incentive for entrepreneurs and innovators to develop these products.

Please don’t wait to enact the Marketplace Fairness Act until all the parts of tax reform are in place. Passing this one bill can be the foundation for future reform as well as provide great benefit to both state and local governments. It also benefits brick and mortar retailers. Creating the same tax collection system for retailers whether they sell online or in a store is only fair.

/R. David L. Campbell/
R. David L. Campbell
Chief Executive Officer
/Joan Wagnon/
Joan Wagnon
Executive Vice President

[Download PDF of FedTax Senate Finance Committee Statement – 4/25/2012]


[i] David Campbell, Chief Executive Officer of The Federal Tax Authority (FedTax), founded the company in 2008. FedTax is a Washington State Limited Liability Company with operations in Washington, Connecticut, and Kansas.  Its management team includes highly experienced professionals who have been directly involved in building some of the most recognizable brands in e-commerce, including MasterCard, Google, WebMD, Microsoft, Expedia, and American Express.

[ii] Joan Wagnon served as Secretary of Revenue in Kansas from 2003 to 2011. She also chaired the Streamlined Sales Tax Governing Board in 2008-9 and the Multistate Tax Commission from 2006 to 2008. She served on the Board of Directors of the Federation of Tax Administrators for 8 years before joining FedTax to work toward the passage of federal legislation granting states’ collection authority over remote sales.

[iii] The notion that out-of-state retailers would find it overly burdensome to keep track of every state’s sales tax rules can be traced directly to the 1967 Supreme Court ruling in National Bellas Hess v. Illinois Department of Revenue. In its majority opinion, the court ruled thatthe many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle National’s interstate business in a virtual welter of complicated obligations to local jurisdictions” (emphasis added).

In 1992, the matter of remote sales tax collection came before the Supreme Court again in Quill v. North Dakota. This time, the court reaffirmed the earlier Bellas Hess decision by a ruling of 8 to 1, primarily on the basis of stare decisis. The ruling went on to state, “[O]ur decision is made easier by the fact that the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”

FedTax frequently cites the earlier Bellas Hess quote because it summarizes the ruling’s basis in complexity and burden, which has rippled forward to the present day and created a tidal wave of unintended consequences. This ruling has shielded all out-of-state retailers from the obligation to collect sales tax, based purely on the notion that it would place too much of a burden on businesses. Perhaps it would have, in 1967. That was the year the floppy disk was invented at IBM.

[iv] States typically depend on voluntary means of collecting from individuals, such as a voluntary line on the income tax form. Audit procedures, which are used for businesses, are ineffective for consumers.

[v] On Cyber Monday (the first Monday after Thanksgiving) in 2011, over $1.2 billion in sales were transacted online. On that day alone, approximately $58 million in sales tax went uncollected.

[vi] FedTax has been designated a Certified Service Provider (CSP) by the Streamlined Sales Tax Governing Board specifically for its TaxCloud service. There are six CSPs and 24 member and associate member states.

[vii] Although “software and services” is not defined in the Marketplace Fairness Act, likely it will include Application Programming Interfaces (APIs), Web Services, rates and boundaries databases, and a process for certifying service providers to process returns accurately under state laws.

[Download PDF of FedTax Senate Finance Committee Statement – 4/25/2012]


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.


Connecticut is wrong to pursue Amazon for past uncollected sales tax

October 10, 2011
Hartford, CT capitol building

Hartford, CT capitol building

According to an AP article, Connecticut claims that Amazon.com owes the state for past uncollected sales tax:

Connecticut plans to press Amazon for the taxes the state believes it should have collected at least during the month or so when the new law was in effect and Amazon still had affiliations with websites in Connecticut through its Amazon Associates Program. Amazon severed those ties in June. . . .

Connecticut plans to evaluate some other connections Amazon has with people in the state and start building a case that Sullivan predicted will ultimately be decided in court. (emphasis added)

But unless we’re missing something, the dates just don’t add up.

  • Governor Malloy signed the new budget bill on May 8.
  • On June 10, Amazon sent letters to its associates in Connecticut terminating its contracts with them.
  • The so-called Amazon Tax, as part of the state budget, went into effect on July 1.

What are we missing here? Is the month-long overlap that Connecticut claims actually between the date the budget bill was signed and the date Amazon terminated its Connecticut associates program?

Amazon ended its associates program twenty days before the law went into effect. So Amazon did not have associates in the state when the law went into effect, and therefore it doesn’t owe the state for any uncollected sales tax that would have been due under the law.

Connecticut officials are suggesting that they will ultimately end up bringing a lawsuit against Amazon. Unless they have another argument to offer, we question their standing to bring such a claim. There’s just no way that Amazon had in-state associates when the law went into effect.


Tennessee strikes deal with Amazon

October 9, 2011

Tennessee and Amazon have agreed to a deal similar to the one between California and Amazon. This deal requires Amazon to begin collecting sales tax for the state in 2014—unless federal legislation on online sales tax has passed by then—and the company will create 3500 full-time and several thousand seasonal jobs in the state. This Missouri News Horizon article has the details.

The agreement comes after years of back-and-forth between Amazon and the Tennessee government. Former governor Phil Bredesen, who preceded current governor Bill Haslam, made a deal for Amazon to bring several distribution centers to Tennessee, creating 1500 jobs, in exchange for an exemption from collecting state sales tax. There had been strong objection to that deal from local Tennessee retailers and others, and there was some question as to whether Haslam, once elected, would uphold the deal made by Bredesen:

The new agreement is a dramatic shift from the original deal struck by the state with Amazon, in which former Gov. Phil Bredesen and his team evidently agreed to allow Amazon to forego collecting sales taxes in exchange for creating hundreds of jobs with distribution centers in Hamilton and Bradley counties.

Haslam had agreed to honor that original deal, and state officials Thursday insisted the new agreement does not mean the state has gone back on its word. . . .

“I’ve been asked several times over the course of the last couple of months if working on an agreement like this is doing what we said we would do as a state. The answer is yes,” Haslam said. “The scope of the project has changed, with the addition of newly planned facilities here, and that conversation in the Legislature and in states across the country has had an impact.”

The agreement won’t apply if federal legislation is enacted before 2014:

Haslam said the agreement applies unless a national solution, which would bring all states under the same framework on state sales tax collections, comes first. Many people believe Congress should act to make application of sales tax law the same for online and traditional retailers.

Tennessee Governor Bill Haslam has spoken publicly in support of the Main Street Fairness Act in the past, and he mentioned it again during the announcement:

“Of the online retail sales where tax is not being collected Amazon is only about 10 percent of it,” Haslam said, adding that that is why he has called for a national solution. “It’s not just about Amazon.”

Paul Misener, Amazon’s vice president for global public policy, was present at the announcement and also made a statement that included strong support for federal legislation:

The Amazon executive said his company supports efforts to streamline sales tax collections nationally.

“The sales tax issue must be resolved in Congress,” Misener said. “It’s the only way the state of Tennessee will be able to retain all the sales tax revenue that can be collected for the state.

“We are committed to going to Washington with the state’s leaders, both here in Nashville and also in Washington, to obtain that sales tax legislation as soon as possible.”

With all this vocal support for the Main Street Fairness Act from both Amazon and state legislators, there seems to be a general consensus that federal legislation is the best solution for everyone. But in its absence, states will do whatever they can to try to make sure sales tax is collected online as well as in local stores.

We hope Congress is noticing the rapidly increasing support for the Main Street Fairness Act among state legislators. These are the people who work where the rubber meets the road and know exactly what their states and communities need to function properly.

Unfortunately, in this case they are not the ones who have the power to make sure states and communities get what they need. That’s Congress. But members of Congress need to listen to what local and state legislators are telling them and then put their support behind Main Street Fairness Act.


California-Amazon deal gives hope to states and the Main Street Fairness Act

September 30, 2011
Stateline.org

Stateline.org: Amazon deal with California may set precedent for online tax collection

According to an article on Stateline.org, the deal between Amazon and California on online sales tax collection gives other states hope that they, too, may get online retailers to collect sales tax—though they do not have as strong a position for negotiating as California:

Now that the largest state in the country has seemingly pressured Amazon to change its policy, the result could be a flood of new online tax laws, as other states ask why Amazon can’t treat them the same as it treats California. Danny Diaz, spokesman for the Alliance for Main Street Fairness, a group trying to get the online retailers to collect taxes, says Amazon has undermined its own case by striking the California deal. “You begin your argument by saying you can’t do it, it’s too complicated, it’s unconstitutional and all of this,” Diaz says, “and you end your argument by saying you’ll do it in a year, it’s legal, you can do it. Clearly, clearly the ground has shifted underneath your feet.”

Other states, though, might not be in a position to get the same deal as California. For one thing, Amazon had more of a presence in that state than simply a bunch of affiliates. The company had several wholly-owned subsidiaries in California, which made it tougher for the company to claim that it lacked a physical presence.

The other difference is that California is simply bigger, which may have made Amazon leery of cutting its ties there. Last Friday, the company said it would add 10,000 jobs in the state in coming years. “When you’re California or New York across the table from an Amazon, it’s a pretty big slice of the market,” says Kevin Sullivan, commissioner of the Connecticut Department of Revenue Services. “We don’t have the leverage that a New York has or the leverage that a California has.”

But, the article continues, the Amazon-California deal inspires even more hope that federal legislation on online sales tax—which would make state-by-state laws unnecessary— will finally pass:

For now, Amazon isn’t indicating that it will offer other states the same deal it offered California. But the company is saying what it would like to have happen next: a federal solution. “We’re committed to working with Congress, retailers and the states to pass federal legislation as soon as possible,” Paul Misener, Amazon’s vice president of global public policy, said in a statement after Brown signed the law. That isn’t a new position. Amazon’s case has long been that it isn’t against collecting sales taxes, so long as a federal deal also makes collecting the taxes less burdensome.

That’s actually what most state officials want, too. Legislation in Congress known as the Main Street Fairness Act would require online retailers to collect sales taxes in the state where a purchase is made, but only if the state is among those that that have made their sales taxes more uniform through an interstate collaboration known as the Streamlined Sales and Use Tax Agreement.

When state legislators came to Washington last week to give their view on federal debt negotiations, one thing they asked Congress for was passage of the Main Street Fairness Act. With Amazon and big brick-and-mortar retailers like Wal-Mart and Target forming an unusual coalition in favor of a federal law, their hope is that their side has the clout to win passage. If the California deal adds urgency to the efforts, all the better. “We’re going to face hundreds of millions, billions of dollars in [aid] reductions,” says Neal Osten, director of the National Conference of State Legislatures’ Washington office. “This is something Congress can do for the states.”

With Amazon, Walmart, Target, and many more major retailers (not to mention the Retail Industry Leaders Association) all joining state legislators from both sides of the aisle in supporting the Main Street Fairness Act, surely the bill’s time has come.

“Still,” the article says, “there are reasons for skepticism.”

For one thing, some online retailers are still taking a hard line against collecting sales tax. Jonathan Johnson, president of O.co (formerly known as Overstock.com), points out that Amazon’s size and wealth positions it to cope with differing sales tax rates and definitions around the country. Smaller online companies might suffer more. “I think the Main Street Fairness Act is anything but main street and anything but fair,” Johnson said in an interview with Stateline. “Big retailers would like to create a barrier to entry for any new company.”

The other reason for doubt is that Congress has struggled to forge compromises on all big issues lately. A proposal that would result in more taxes being collected—even if the taxes are legally already owed—will be an especially hard sell, even if the failure to pass it will likely result in a new round of messy fights between states and online retailers.

If these are the only arguments standing in the way of the Main Street Fairness Act, then we take heart. There are reasonable answers to these objections.

First, the notion that “the Main Street Fairness Act is harmful for small online retailers”: It’s really not. Technology has reached the point that today, it’s no more difficult to collect sales tax online than to calculate shipping rates. Look at TaxCloud, a comprehensive sales tax management service that’s available at no cost for retailers. With services like TaxCloud available—again, at no cost—there’s no reason for any retailer, no matter how small, to find it difficult, costly, or burdensome to collect sales tax.

Second, there is this scare statement that “the Main Street Fairness Act is a hard sell in Congress”: We disagree. While it is easy to simply say things like “it will never happen” or “Congress is too divided,” nobody in Washington DC is saying that about this issue (except for the ATU and NTP). In fact, it’s one of those rare bills that has bipartisan support. It may have been introduced by a Democrat, but it has lots of Republican supporters, among them Senator Bob Corker (R-TN), Senator John Boozman (R-AR), and Tennessee Governor Bill Haslam (not to mention all the Republican supporter in state legislatures, such as Luke Kenley (IN) and Evelyn Lynn (FL), to name just two). We think that once hard facts overcome all the inflammatory rhetoric about the Main Street Fairness Act, voting for it should be a pretty easy decision.

The Stateline article is well worth reading in its entirety for its thorough summary of the arguments for and against online sales tax collection. Just keep in mind that the arguments against it aren’t the last word.


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.


THUD (Part 2) California legislature repeals ABX1 28 – All to work to pass the Main Street Fairness Act by July 2012!

September 10, 2011

California legislature approves amended AB 155, repeals ABX1 28! AMZN to reinstate CA affiliates!

[UPDATED 9/10 @ 6:30 AM PDT] We were very excited to learn that in the final hour of their 2011 legislative session, the California legislature overwhelmingly passed a heavily amended version of AB I55  (California Senate voted 39 to 1 in favor, the Assembly voted 59 to 8 in favor).

Although the text of the amended bill is not yet now available for public inspection (text of substantive amendment included below), it has been reported on by several authorative sources, including California Senate Republican Leader Bob Dutton (R-Rancho Cucamonga), California BOE Member George Runner, the Associated Press, and the San Francisco Chronicle.

Here’s what we have learned so far:

  1. AB 155 (as amended) repeals ABX1 28 (see our original post “THUD! Did Congress Hear That?“)
  2. Amazon will reinstate its 10,000+ California affiliates

    “This bipartisan, win-win legislation will allow Amazon to bring thousands of jobs and hundreds of millions of investment dollars to California, and welcome back to work tens of thousands of California-based advertising affiliates,” Paul Misener, Amazon’s vice president of global public policy, said in a statement.

  3. All parties (including California legislators, local and national retailers, and Amazon) will work with Congress to pass federal legislation (the Main Street Fairness Act) by July 2012!
  4. If Congress fails to act by July 2012, the original terms of ABX1 28 will be reinstated.

As we have stated several times before, we firmly believe this is the best course of action:

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.

Although AB 155 has passed the legislature, Governor Brown has until October 7th to sign it into law; if he doesn’t—well, then all bets are off. Timing-wise, one would expect (or at least hope) the governor will make a decision in advance of the end-of-September deadline for Amazon to submit its half-a-million signatures in support of its referendum for voter repeal ABX1 28.

We are truly inspired by this dramatic twist of events in the legislature of the eighth-largest economy in the world. We look forward to the promised bipartisan effort in Washington, DC, to enact the Main Street Fairness Act by July of next year!

We would also like to send our most sincere (and hopefully not premature) congratulations to all of our affiliate friends and supporters in the state of California!

[UPDATED 9/10 @ 6:30 AM PDT]  The new Section 6 represents the substantive amendment to AB155:

SEC. 6.

  1. (a) Sections 1 and 2 of this act shall become operative on the effective date of this act.
  2. (b) Section 3 of this act shall become operative on either of the following dates:
    1. If federal law is enacted on or before July 31, 2012, authorizing the states to require a seller to collect taxes on sales of goods to in-state purchasers without regard to the location of the seller, and the state does not, on or before September 14, 2012, elect to implement that law, Section 3 of this act shall become operative on January 1, 2013, and Section 2 of this act shall become inoperative on that same date.
    2. If federal law is not enacted on or before July 31, 2012, authorizing the states to require a seller to collect taxes on sales of goods to in-state purchasers without regard to the location of the seller, Section 3 of this act shall become operative on September 15, 2012, and Section 2 of this act shall become inoperative on that same date.
  3. (c) The Director of Finance shall, on or before August 15, 2012, certify in writing to the Governor, the Senate Committee on Rules, the Speaker of the Assembly, and the State Board of Equalization whether or not federal law has been enacted on or before July 31, 2012, authorizing the states to require a seller to collect taxes on sales of goods or services to in-state purchasers without regard to the location of the seller.
  4. (d) For the period between June 28, 2011, and the effective date of this act, state law regarding the imposition and collection of use taxes, including, but not limited to, any reporting requirement imposed on a seller, shall be administered and applied in accordance with state law as it read on June 27, 2011.

SEC. 4. SEC. 7. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are:

In order to lessen the burden at the earliest possible time on small businesses that are otherwise required to collect use tax, it is necessary that this act take effect immediately.

In order to clarify and confirm at the earliest possible time the obligations of certain retailers to collect use taxes from California purchasers, it is necessary that this act take effect immediately.


Amazon and retailers agree with California to push for federal legislation resolution (Main Street Fairness Act)

September 8, 2011

As reported moments ago by the Sacramento Bee (read here), Amazon and other national retailers have agreed to suspend their referendum effort in exchange for a concerted effort to resolve this issue (of internet sales tax collection) by July 2012.

We recommend reading the article directly, as the SacBee has this issue well covered.

9/9/2011 UPDATECalifornia legislature approves amended AB 155, repeals ABX1 28! AMZN to reinstate CA affiliates! All to work to pass the Main Street Fairness Act!


TaxGirl guest post about Amazon and the Main Street Fairness Act

August 30, 2011
Forbes - TaxGirl Guest Post: Why Amazon Is Doing the Right Thing for Online Sales Tax

Forbes - TaxGirl Guest Post: Why Amazon Is Doing the Right Thing for Online Sales Tax

The infamous TaxGirl (Kelly Phillips Erb), a Forbes contributor, has published our CEO’s article!

Guest Post: Why Amazon Is Doing the Right Thing for Online Sales Tax

Our CEO wrote this opinion piece at the invitation of TaxGirl, for her to publish while on her well-deserved summer vacation.


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.


Group calls for boycott of Amazon, but Main Street Fairness Act is real fix

August 15, 2011

In an announcement earlier today, California “State Senator Loni Hancock (D-Oakland), Assembly Majority Leader Charles Calderon (D-Montebello), and Assembly member Nancy Skinner (D-Berkeley) joined dozens of California seniors, low-income families, people with disabilities, and health care and human services advocates” to launch the ThinkBeforeYouClickCA.org website opposing Amazon’s ballot referendum against California’s online sales tax collection legislation. The website urges people to cancel their Amazon accounts in protest of Amazon’s actions:

Every Californian has been affected by the cuts to balance California’s budget, none more than low-income seniors, students and people with disabilities. Now, online retail giant Amazon.com wants to overturn the one small victory we won this year in our campaign to close corporate tax loopholes: the Sales Tax law that would require online vendors to collect sales tax just as California’s “bricks and mortar” vendors do. This law will provide California with $200 million in desperately needed revenues to prevent further cuts to vital public services, while helping local business by closing the loophole that lets online retailers like Amazon.com undercut them. 

Fight back by telling Amazon.com to play by the same rules all other California businesses do! If Amazon.com is unwilling to contribute to the well-being of our state, then we need to tell Amazon.com that we won’t contribute to their profits!

According to a related Associated Press article, Amazon has spent $3 million to support its ballot referendum against California’s legislation.

While we understand why groups oppose the ballot referendum, there is a much better solution for everyone. The Main Street Fairness Act, now pending before Congress (S.1452 / H.R. 2701), would authorize states to require all retailers to collect sales tax—which would both level the playing field for bricks-and-mortar retailers and ensure that states receive the sales tax revenue that is already due and is needed to fund vital community services. What’s more, it will make collecting sales tax easier for all businesses.

Best of all, this is something that Amazon and California legislators can agree on—both support the Main Street Fairness Act. Whether you support or oppose California’s sales tax legislation, the Main Street Fairness Act makes more sense. It makes everyone play by the same rules, prevents further budget cuts, makes sale tax collection easier for businesses, and helps keep people employed (both by letting retailers keep their affiliates and by helping local retailers stay in business).

California’s Board of Equalization estimates that the state lost $1.145 billion in 2010 because most online retailers didn’t collect sales tax. As the Supreme Court ruled in 1967 (Bellas Hess) and 1992 (Quill), the only road toward recovering that lost revenue goes through Washington, D.C., via the Main Street Fairness Act—as we have said before.

Amazon has publicly stated that it supports the Main Street Fairness Act. Amazon’s Vice President for Global Public Policy, Paul Misener, even sent a letter thanking Senator Dick Durbin for introducing the bill:

Amazon.com has long supported a simple, nationwide system of state and local sales tax collection, evenhandedly applied to all sellers, no matter their business model, location, or level of remote sales.  To this end, I am writing to thank you for your bill that would allow states that sufficiently simplify their rules to require collection of sales tax by out-of-state sellers.

If you’re thinking about boycotting Amazon, consider putting your energy into supporting the Main Street Fairness Act instead. Contact your representative in Congress and let them know that the Main Street Fairness Act is the best solution for everyone. (Plus, it lets you keep your Amazon account.)


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…