CNBC’s Maria Bartiromo covers the “Internet Sales Tax Showdown”

June 21, 2011
CNBC: Internet Sales Tax Showdown

CNBC: Internet Sales Tax Showdown - MONDAY, 20 JUNE 2011 @ 04:15 PM ET

Maria Bartiromo sits down with Curtis Dubay and Michael Mazerov

Maria Bartiromo sits down with Curtis Dubay of the Heritage Foundation, and Michael Mazerov from the Center on Budget & Policy Priorities, to discuss whether imposing an online sales tax is the right move to make for states that are in need of revenue.

Yesterday, immediately following the closing bell in New York, CNBC’s Maria Bartiromo interviewed Curtis Dubay of the Heritage Foundation and Michael Mazerov from the Center on Budget and Policy Priorities on whether collecting sales tax online is the right move for states that are in need of revenue.

Ms. Bartiromo initiated the questioning:

Collectively, states are facing a fiscal budget shortfall of $130B according to the Center on Budget and Policy Priorities, and requiring online-only retailers to tax their sales, particularly in states where they don’t have a legal presence, could generate a much needed $10B according to a study by the University of Tennessee. Not everybody believes is the right solution to solving the states fiscal problems. The Heritage Foundation Senior Policy Analyst Curtis Dubay says “such attacks won’t raise any revenue.” Michael Mazerov a Senior Fellow from the Center on Budget & Policy Priorities says “states need the revenue, and should collect it to plug the holes.”

Mr. Dubay then started off:

Rather than nickel and dimeing their already over-taxed citizens with more taxes, states should be focused on cutting their spending. . . No amount of tax increases can bail them out of their profligacy.

As our regular readers already know, nobody in this debate is suggesting any new taxes, or any tax increases! We hate it when people suggest such nonsense. Fortunately, Mr. Mazerov is no stranger to this subject, and he quickly set the record straight:

Well this isn’t a tax increase. Everything you buy on the internet is subject to tax, and has already been subject to tax. All we’re really talking about here is changing the law so that companies like Amazon and Overstock have to collect the same tax that every store on Main Street has to collect. . . Internet sales are already subject to tax in every state [that collects sales tax]. If the seller doesn’t collect it from you, you have to pay it yourself directly to your state. It’s not a new tax. It’s not a tax increase.

Well put, Mr. Mazerov! On the estimates that states could collect between $10B and $23B and how states may consider this revenue significant in light of the many budget cuts they have already made or are planning to make, Mr. Mazerov continued:

States have been making huge cuts, and $10B isn’t going to offset a very large share of what they’ve been forced to [cut] already. But it is a significant amount of revenue, and it could be the difference for whether kids have a summer school program in a certain state, or whether tuition goes up at the community college by only 5% rather than 10%. So it’s definitely worth doing. Nobody says this is going to solve the fiscal problems of the states, but it can help.

Smartly, Mr. Dubay agreed, but then he quickly went on to try and argue once again that this is a new tax:

Well he’s right, residents are required to file use taxes, but the fact remains this would be, uh, kind-of a new tax.

No, Mr. Dubay. Mr. Mazerov is correct and you are not. This is not “kind-of a new tax.”

Mr. Dubay went on to describe how states that have been enacting the affiliate nexus laws have been seeing companies like Amazon and Overstock terminate their affiliate relationships in those states, with the result that the state not only doesn’t gain any meaningful revenue, it actually loses revenue when the jobs created by those relationships go away. In response, Mr. Mazerov quickly pointed out that:

. . . the states basically have to stick together to solve this problem. The best solution is not at the state level. The best solution is at the federal level.

We strongly suggest you go and check out the the video yourself—and we look forward to introduction of the Main Street Fairness Act (very soon!), which will finally address this problem at the federal level, as Mr. Mazerov and many, many others have suggested.


Census figures point to new estimates for 2011 e-commerce

May 24, 2011
US Census Bureau: New E-Stats

US Census Bureau: New E-Stats

The Census Bureau released new retail figures last week, including figures for e-commerce sales in the first quarter of 2011.

We did a little math to figure out, based on those first-quarter figures, how much we can expect in e-commerce sales for this entire year. We averaged the ratios of first-quarter e-commerce sales to total e-commerce sales for 2009 and 2010, which gave us a figure of 4.24—in other words, the total e-commerce sales for the past two years have averaged about 4.24 times as much as the first-quarter sales.

Previous Two Years E-Commerce Retail Sales (in Millions)
2009 Q1 2009 FYE ’09 FYE/Q1 2010 Q1 2010 FYE ’10 FYE/Q1 Avg. Ratio
$34,151 $144,462 4.23 $39,159 $166,529 4.25 4.24

Using that ratio for 2011, we multiplied the first quarter e-commerce sales figure of $46 billion by 4.24 to get just over $195 billion. We should point out this figure does not include sales from online auctions, mail-order catalogs, telephone orders, or TV shopping networks.

Now for the most interesting part: how much sales tax (or use tax) due will actually be collected/remitted?

At the current average sales tax rate of 6.85% percent, the total sales tax due on $195 billion is approximately $13.5 billion. However, according to California’s Board of Equalization, typically only four-tenths of one percent (0.04%) of the tax due on e-commerce sales is collected. Which means that (drum roll, please). . .

Although about $13.5 billion will be due, the states can expect only $53 million in revenue, unless Congress takes action by enacting the Main Street Fairness Act. With our states in such dire fiscal condition, we hope Congress will allow states to simply collect the tax that is due, instead of raising taxes.


States Continue to Feel Recession’s Impact

October 13, 2010

This article recently published by the Center on Budget and Policy Priorities outlines that states are currently experiencing the steepest decline in tax receipts on record.  “As a result, even after making very deep spending cuts over the last two years, states continue to face large budget gaps.”  States experience large shortfalls in fiscal years 2009 and 2010, and the situation is no better for fiscal year 2011 (July 1- June 30 2011).  According to the article, at least 46 states struggled to close shortfalls this year.

The need for states to seek new sources of funds is clear; and the Main Street Fairness Act currently pending in Congress is gaining a lot of support from state Governors.  In addition to replacing sales tax revenue that has declined as shopping has shifted online (down from 40% to 14% in recent years), the MSFA is viewed as a way to help local merchants compete with remote sellers.  Local merchants provide local jobs, which is an added benefit to financially-strapped communities.

 


Response: LA Times invents more Amazon Tax.

February 22, 2010

The LA Times ran an article this weekend about California ABX8 (the emergency amazon tax) – unfortunately, the LA Times does not offer a web-forum for comments/responses. The Article incorrectly states in the subtitle and in the article that the effect of this bill could result in $150 million per year in new revenue for the State of California. The fact-checker seems to have been asleep-at-the-wheel, because the actual Senate Analyses (available here) projected the revenue effect of this bill would be $107 million. Don’t get me wrong, $107 million is a lot of money, but when your state has a 14.6% budget gap, perhaps everyone should start double-checking their numbers and actually doing math. Substantially more revenue is “still left on the table” by all the other out-of-state sellers that are not collecting sales tax (hard to imagine sometimes, but there actually are other companies making sales online – about 3.5 million of them).

California should simply become a Full Member State of the Streamlined Sales and Use Tax Agreement (or SSUTA). The California Legislature already passed related legislation last fall. California now should take the remaining steps to become a full Member State under the SSUTA – a collective effort of 44 states (including California) which has been developing for the last 10 years to simplify and standardize sales tax laws to enable congressional action at the federal level to resolve this matter once and for all.

In anticipation of California’s likely ultimate adoption of SSUTA provisions, at Fed-Tax.net we have already prepared our TaxCloud systems to provide real-time calculation of accurate local sales tax for every jurisdiction in California. Take a moment to try it out at http://myrate.taxcloud.net/. Once California becomes a full Member State under the SSUTA we will be happy (and honored) to help merchants all over the country accurately calculate local sales tax for California residents. We will do this at absolutely zero cost to merchants or consumers (we are paid by the states to perform remote merchants’ sales tax management, reporting, and remittance obligations).

We know nobody likes paying sales tax, but the fact remains that this tax is still due, and when merchants do not collect at the time of sale (as they do in all physical stores), then the consumer is obligated to report and pay these taxes on their own. Since few people do, these taxes go unpaid resulting in massive budget shortfalls as California is now enduring. We think it is terrible that through lack of federal action to-date on this matter an entire generation of consumers on the Internet have grown up feeling that not being charged sales tax on Internet purchases is their constitutional right – and are frequently shocked to learn that they are committing tax fraud when they willfully or at least negligently fail to report and pay these taxes. It is time for California to tell all Internet merchants (not just those with affiliate marketing practices) that it is time for them to respect the budget decisions made by the California voters and their elected officials and to stop pretending it is too difficult, too complicated, or too costly to calculate local sales tax. Our TaxCloud service demonstrates these arguments are without merit, and these merchants are simply avoiding collection as a way to bully local merchants (who must collect sales tax) out of consumer price-competition.

California’s Projected 2010 Budget Shortfall: $ 14,400,000,000 1
AXB8 Projected Revenue: $ 107,000,000 2
Difference: $ 14,293,000,000 3

Total Sales Tax due by California consumers based on purchases from out-of-state Internet retailers

Uncollected Sales Tax (from remote sellers) $ 1,441,100,000 4

Admittedly, becoming a full SSUTA Member State will not solve all of California’s budget deficit, but at least it can cover 10% – and it is not a new tax, and no budget cuts are required.

1-Source: Center on Budget and Policy Priorities – http://www.cbpp.org/cms/index.cfm?fa=view&id=711
2 – Source: State of California Senate Analysis – http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0001-0050/abx8_8_cfa_20100219_175402_asm_floor.html
3-Source: Simple Math
4-Source: The University of Tennessee 2009 Study: State and Local Government Sales Tax Revenue Losses from Electronic Commerce


DEBATE: “Amazon” Affiate Taxes vs. Streamlined Sales Tax

February 6, 2010

TaxAnalysts hosted a fascinating panel discussion at the National Press Club this morning that everyone interested in Internet sales taxes should invest the two hours of time the entire debate deserves.

The debate was titled: State Taxes on Internet Sales: Are “Amazon” Laws the Answer?

The event was descibed by the organizers:
A discussion about whether states should tax Internet or other kinds of remote sales, and if so, how. Should states pursue “Amazon” laws that New York and Rhode Island have adopted and other states are considering? Or should Congress enact legislation to enable states to pursue a multistate solution?

The panel was moderated by:
Chris Bergin, President of Tax Analysts (taxanalysts.com)

The panelists were:
Michael Mazerov, senior fellow with the Center on Budget and Policy Priorities.

Stephen P. Kranz, is a partner with Sutherland Asbill & Brennan LLP. Kranz is a well-known figure in the state tax world. A former general counsel at COST, Kranz has become a leading representative of business interests in court as well as before the legislatures.

Scott Petersen, is the Executive Director of the Streamlined Sales Tax Governing Board

George Isaacson, is a senior partner at Brann & Isaacson and tax counsel to the Direct Marketing Association and has represented the DMA in the filing of amicus curiae briefs in state and federal courts throughout the country, including the United States Supreme Court, regarding various tax matters.


Response: New York Times rails Amazon (but no one else)

December 28, 2009

On the heels of several other articles by other major papers, Randall Stoss wrote a seething article in the New York Times about how Amazon should be required to collect sales tax (quite noticeably the article didn’t point out or suggest that any other Internet retailers should).

This is yet another article about how Amazon.com should be collecting sales tax, even when most other retailers are not.  Another curious aspect of this particular article:  Why does it bother the Old Gray Lady in New York, since Amazon.com is already collecting and remitting sales tax from consumers in New York (though they are understandably not pleased about it).

In our view, the media is putting alot of effort behind a recent report (“Amazon’s Arguments Against Collecting Sales Taxes Do Not Withstand Scrutiny“) published November 16, 2009 by Mr. Michael Mazerov of the “Center on Budget and Policy Priorities.”  Mr. Mazerov is not new to the issues of Internet sales tax matters, having articulated many aspects of the debate more than ten years ago:

In 1998, Mr. Mazerov co-authored a detailed report “A Federal Moratorium on Internet Commerce Taxes Would Erode State and Local Revenues and Shift Burdens to Lower-Income Households.”  Sadly, the conclusions drawn in 1998 ultimately came to pass primarily, although not specifically related to what became known as the “Internet Tax Freedom Act” – which thankfully limited it’s so-called “moratorium” to only “Internet access” and “online services” specific taxation (this legislation was recently extended through 2014).  Particularly prescient was their conclusion at the time:

“The avoidance by affluent consumers and businesses of sales taxes on Internet purchases could mean higher sales taxes or reduced public services for low- and moderate-income households”

In 1999 Mr. Mazerov authored a summary report entitled “Should the Internet Remain a Sales Tax Haven?” (also for the CBPP).  Also a worth-while read on the subject.

Finally, and perhaps most insightfully, in February 2000, Mr. Mazerov testified alongside Iris J. Lav (CBPP Deputy Director) before the US Senate Committee on the Budget:

“When a seller does not collect and send the tax to the state of the purchaser, customers who receive the goods are supposed to pay state and local sales taxes directly. Consumers are supposed to file a tax return showing the value of the untaxed goods they have purchased from remote sellers and to pay the tax on those purchases. More than one-third of the states actually provide information and forms in their personal income tax booklets to help consumers pay sales taxes on purchases from out-of-state companies. Nonetheless, compliance with this self-remittance requirement is minuscule in the case of individual consumers and spotty in the case of businesses — especially small businesses.

The combination of weak tax compliance by consumers and the limited obligation of remote sellers to collect taxes is eroding the sales tax base of state and local governments. As I will discuss shortly, it is disproportionately upper-income households who are avoiding paying their fair share of sales taxes by purchasing from remote sellers. Both the revenue loss and the unfair tax advantages for the affluent are likely to increase because of the still more rapid growth in Internet purchasing that is projected to occur in the next few years.”

Their testimony concluded:

“If initial steps are not taken soon to end the de facto sales tax exemption that applies to most Internet and mail-order purchases, the sales tax burden on lower-income Americans is likely to rise and the access of all citizens to high-quality education and other critical state and local services could be impaired. These outcomes will be all the more severe should Congress enact a blanket sales tax exemption for Internet purchases or even tighter restrictions on the ability of states to require remote sellers to collect and remit sales taxes than currently exist. There is a practical alternative to both of these options. Congressional endorsement of the principle of equal tax treatment of retail store purchases, mail-order purchases, and Internet purchases could encourage the electronic commerce and mail order industries to work constructively with state and local governments toward a workable compromise. Such a compromise could achieve a reduction in sales tax compliance costs for many businesses, while ensuring both that no business or individual avoids paying a fair share of sales tax and that state and local governments remain capable of financing necessary services” 

It seems without question that the CBPP has been familiar with the issues at hand for quite some time – and that Mr. Mazerov is more than sophisticated on these matters, and we eagerly look forward his updated report on the matter, which we predict will be titled: “The first decade of Internet Sales Tax (or lack thereof).”