States increase online sales tax enforcement–which is why retailers should support federal legislation

August 31, 2012
Forbes

FedTax CEO David Campbell has a guest post on Forbes’ TaxGirl blog

Our CEO, David Campbell, has written a guest post for Forbes’ TaxGirl blog. The post tackles the provided topic “Is it fair to require online retailers to collect and remit state sales tax?” and focuses on the concerns of states without sales tax and why they should support federal online sales tax legislation. Take a look—we may be biased, but we think it’s a great read.

The post is particularly timely because of the recent sales tax news from California and Pennsylvania.

Both states are beginning to require online retailers, no matter where they’re located, to collect sales tax—even though no federal legislation granting them that power has been passed. States are no longer content to wait for federal legislation; they’ve begun taking online sales tax into their own hands.

As Mr. Campbell says in the post, this has particular importance for online retailers in non-sales-tax states because it means that even without federal legislation, it’s unlikely that they’ll be able to avoid collecting sales tax for long.

The LA Times has a great article on California’s move toward online sales tax. It includes this quote about increasing enforcement:

On Thursday, the tax agency announced new efforts that include spending $10 million over the next three fiscal years to hire nearly 100 tax specialists, auditors, lawyers and call-center operators. An additional 35 people will be needed in the fourth year, the board said recently.

These new workers are hired to identify and contact what the board estimates are “upwards of 2,000” out-of-state businesses that should be collecting sales tax under the new law and take action against any suspected scofflaws.

Pennsylvania, too, is increasing its enforcement of online sales tax collection, as this Internet Retailer article explains. Existing law says that any retailer with a physical location in the state must collect Pennsylvania sales tax. The state has said that this includes third-party retailers who use eBay or Amazon warehouses for order fulfillment, and beginning in September, it’s going to be requiring all online retailers to abide by this law.

With states already starting to require online sales tax collection, why the need for federal legislation?

Aside from legal issues regarding state authority over out-of-state businesses (which will have to be resolved either by Congress or in the courts), there’s a very good reason for all retailers to support federal online sales tax legislation: It would make states simplify their sales tax laws.

As Mr. Campbell says in his post:

While it isn’t possible to turn back the clock on online sales tax collection, it is possible to make it easy for sellers to collect sales tax. The Marketplace Fairness Act requires states to simplify and standardize their sales tax laws before they can require any out-of-state seller to collect sales tax. Online retailers in non-sales-tax states should be supporting this legislation: It’s the only way they can make sure that collecting sales tax won’t be too complicated.

Sales tax has always been due on online purchases. Online retailers haven’t had to collect sales tax in the past, but that loophole is about to end, one way or another.

Let’s end it the right way, by making sure states simplify and standardize their sales tax laws.


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!


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.)


Poll results about online sales tax collection expose myths vs. facts

July 27, 2011

Two recent polls on online sales tax highlight the fact that a lot of misinformation is circulating about online sales tax collection.

The first poll, from the International Council of Shopping Centers, found that two-thirds of U.S. consumers in states with sales tax are unaware that sales tax is due on online purchases:

Sixty-four percent of U.S. consumers in states that require their residents to pay a sales tax on purchases either do not know or do not believe they are required to pay sales tax on Internet purchases if not collected by the vendor, according to a new survey by the International Council of Shopping Centers (ICSC). . . .

Consumer compliance with the use tax payment on online purchases is generally low. A key reason for this, as the ICSC study found, is that consumers expect the vendor to collect sales taxes if they owe them. 

The poll results include several other fascinating findings—among them, that “93% of consumers would continue to shop online if taxes were collected at the point of purchase” and “more than 50% of respondents cited ‘price’ as the most important factor when making a purchase”—and we recommend you review the complete results.

The second poll actually, and inadvertently, demonstrates the results of the first poll.

Conducted July 6-17, 2011, the latest USC Dornsife/Los Angeles Times Poll shows 46 percent of voters favoring the online sales tax as a revenue source to help balance the budget and pay for state services. Forty-nine percent opposed the measure, which would raise taxes and could hurt local businesses who sell products through online retailers such as Amazon.com.

“At this point, Californians are evenly divided on whether online purchases should be taxed. This could be one of the most expensive campaigns in California history, and neither side starts with a clear advantage,” said Dan Schnur, director of the USC Dornsife/Los Angeles Times Poll and director of the Unruh Institute of Politics at USC.

The problem is, of course, that online purchases are already subject to sales tax, and always have been. By asking respondents if they support taxing online sales, the pollsters completely missed the point. The California measure they wanted to ask voters about would not, despite what they say, raise taxes. It would simply define which online retailers must collect the existing California sales tax on online purchases. We would have been very interested to see the results of a poll on the actual legislation; it’s too bad that the pollsters got this one so wrong.

But it does highlight the fact that, as the first poll suggests, there is a lot of misinformation out there about online sales tax collection. So we thought it would be helpful to address some of the most common myths about online sales tax collection and uncover what the facts really are.

States where internet purchases are taxableMyth: By requiring online retailers to collect sales tax, the government is raising taxes.

Fact: Sales tax is already due on online purchases, whether or not the retailer collects it. This is true in all 45 states with sales and use tax laws—most of which were enacted more than 50 years ago. As we have said before, this is not a new tax.

Right now, a consumer who buys online without paying sales tax is required to calculate the sales tax due—which is called “use tax” at this point—and remit that tax directly to the state with their tax returns. However, most consumers are unaware of this requirement, and so most sales tax on online purchases goes unreported. It’s nearly impossible for states to ensure that consumers remit the correct use tax, so instead, several states have tried to get online retailers to collect sales tax, just as bricks-and-mortar retailers do. But these attempts are often perceived as tax increases, when in fact they’re nothing of the sort. Whether you the consumer send the sales tax directly to the state or the retailer collects the sales tax when you make your purchase, sales tax is still due on online purchases.

We can’t say this enough: States aren’t implementing a new tax or raising taxes on online purchases.

Myth: Calculating and collecting sales tax for every tax jurisdiction nationwide would be too difficult for online retailers.

Fact: Today’s technology makes it easy for a retailer of any size to calculate and collect sales tax for every tax jurisdiction in the nation. It’s no more difficult than calculating shipping rates in real time, something nearly every online retailer does.

We can’t emphasize this enough: Calculating and collecting sales tax is no longer an administrative burden, not even for the smallest sole proprietorship. Inexpensive, even free, software and services (such as TaxCloud) are available to make this easy for any retailer. In fact, most small online retailers already use shopping cart services that are looking at the best way of providing sales tax calculation for their merchants. We promise, online retailers are not going to suffer because they have to collect sales tax.

Myth: It is only fair that internet companies are not obligated to collect sales tax. After all, brick-and-mortar retailers don’t have to charge for shipping.  

Fact: Shipping costs are factored into the business model of internet retailers—if you want to sell something without the expense of maintaining a local store, you have to figure out a way to get the goods to the consumer. Online retailers’ current exemption from collecting sales tax is an artificial advantage, based on the inefficiencies of use tax collection (consumers get a lower price if they forget to pay the use tax). Sales tax was never intended to offset shipping costs.

Myth: Local retailers cannot claim that this is an issue of fairness—a bricks-and-mortar store is free to sell online and avoid collecting sales tax too.  

Fact:  Requiring local retailers to collect sales tax when online retailers don’t have to is unfair, plain and simple—regardless of whether a local retailer also has an online store. To take this argument to its logical conclusion, in order to make things fair everyone should just sell online—which would mean no local stores at all. Envision your community without a bookstore, coffeehouse, or clothing store; that’s not what anyone wants.


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…


Politico: E-tailers vs. retailers on tax issue

July 18, 2011
Politico: E-tailers vs. retailers on tax issue

Politico: E-tailers vs. retailers on tax issue

Politico has a comprehensive article today on the online sales tax debate going on throughout the country.

The only point we take issue with was this statement tucked in the middle of the article:

Another concern is that the crazy quilt of local and state taxing jurisdictions is too complex for online retailers, particularly small businesses, to manage.

This should not be a concern. Admittedly when the Supreme Court dealt with this issue in 1967 (Bellas Hess) and 1992 (Quill), such concerns of complexity were legitimate, but not anymore. Thanks to a decade of effort by 44 states and businesses to create the Streamlined Sales and Use Tax Agreement, our TaxCloud service now enables retailers (online and offline) to calculate and remit sales tax across the country—and for Streamlined states, it can also automatically handle registration and periodic filings, and will even respond to any jurisdictional audits. And most importantly, TaxCloud is completely free.

Finally, the Quill decision openly invited Congress to resolve this issue. We thank Senator Durbin and all other sponsoring senators for showing the courage to finally resolve this issue so individual states don’t have to keep pushing the boundaries of the definition of nexus just to collect the sales tax already due.


Bloomberg.com supports online sales tax collection

July 15, 2011
Amazon.com, Infant No More, Should Be Charging Sales Tax: View

Amazon.com, Infant No More, Should Be Charging Sales Tax: View

In a new editorial, Bloomberg.com comes down firmly on the side of online sales tax collection:

There are lots of good reasons to shop online, but dodging sales tax shouldn’t be one of them. Amazon.com Inc. (AMZN) is battling the authorities in its largest state market, California, over this principle. The good arguments are on the Golden State’s side.

Among those good arguments, the article cites the following:

  • Local retailers have to collect sales tax while online retailers don’t, putting local retailers at an unfair disadvantage: “Brick-and-mortar retailers have been fuming about this disparity for years. “We’re at a huge competitive disadvantage with online retailers,” says Bill Dombrowski, president of the California Retailers’ Association. “It’s bleeding us.”
  • States are losing millions of dollars in uncollected taxes: “California’s fiscal experts aren’t happy either. State Assemblyman Charles Calderon estimated that California was missing out on $83 million a year in sales tax that wasn’t being collected by Amazon. (The state asks taxpayers to compute their online tax obligations as part of annual income tax filings, but hardly anyone does.)
  • Sales tax is necessary to pay for vital community services: “It’s important to remember, though, that sales tax isn’t just a nuisance charge you pay every time you eat at a restaurant, buy a T-shirt or get your car’s oil changed. In the 45 states that charge sales tax, these levies are a major way of paying for roads, police, teachers and other services.”

Note, however, that one of the first points the editorial makes includes several inaccuracies, which we’d like to clarify:

Online stores rang up more than $170 billion of purchases last year, accounting for about 9 percent of all retail sales. That’s a far cry from these merchants’ tiny start in 1998, when Congress granted a three-year reprieve from taxation, believing that the fledgling Internet sector needed help getting started.

This is a reference to the Internet Tax Freedom Act, which prohibited any new or discriminatory taxes on Internet access. It did not, however, prohibit the collection of existing sales or use tax on e-commerce transactions (as our friend Michael Mazerov at the Center for Budget Policy and Priorities points out).

We also believe that the $170 billion in online purchases in 2010 is too low a figure. Although it is based upon Census Bureau data, it doesn’t include other remote retail transactions including mail-order purchases ($106 billion) and online auctions ($75 billion—eBay’s 2010 Gross Merchandise Volume, per this source); when those figures are included, the number more than doubles, to approximately $350 billion in sales for which sales tax is not collected. (See our January post on the Census figures for more.)

Here’s the math: at an average national sales tax rate of approximately 6.8% (not that we are suggesting there should be a national sales tax!), that’s $23.8 billion in uncollected sales tax. (For those of you who follow this debate, that number probably looks familiar: it’s the one lawmakers and politicians frequently cite.)

The editorial concludes:

In pushing the referendum, Amazon has been arguing that California needs to do more to attract business, not drive it away. That’s doubtlessly true, but it’s hard to see how lenient tax treatment for online retailers furthers that goal. As the sponsor of California’s new law rightly put it in May, “If you oppose this bill, you support tax evasion.”

It’s a terrific statement of support for California and online sales tax collection from a pro-business source. The only thing that could have made it better is if it had voiced support for federal legislation, which is the best way to ensure all retailers follow the same sales tax collection rules and at the same time provides an incentive for states to simplify their sales tax collection guidelines.

Nevertheless, we’re thrilled to see Bloomberg take an unequivocally positive stance in favor of online sales tax collection.


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.