Lots of errors in Orange Country Register editorial

April 21, 2011
Editorial: New Durbin bill targets e-commerce

Editorial: New Durbin bill targets e-commerce

A recent editorial in the Orange County (CA) Register combines in one place nearly every misconception and outright error we’ve heard about the Main Street Fairness Act.

Let’s start with one we often see: “It raises taxes.” This is unequivocally wrong. The Main Street Fairness Act would not create a new tax or raise current taxes. Sales tax is already due on online purchases; it’s just not necessarily collected by the retailer at the point of purchase. If it’s not, consumers are required by law to send the tax directly to the state. Few do, but that doesn’t change the fact that they are supposed to. By allowing states to require online retailers to collect sales tax, the Main Street Fairness Act would simply shift the remitting requirement from consumers to retailers.

Here’s another one:

We believe that taxes should have a reasonable connection to the government benefits they support. While out-of-state retailers don’t charge sales taxes, they also don’t reap any of the benefits from another state’s government. Out-of-state businesses never contribute to the wear-and-tear on state highways, public safety needs, or other basic infrastructure costs.

We also believe that taxes should “have a reasonable connection to the government benefits they support.” Which is why sales taxes, paid by the consumer, go to fund vital services in the consumer’s community, such as police, firefighters, schools, libraries, parks, road maintenance, and more. The out-of-state retailer doesn’t benefit from these services in other communities, but they also don’t pay for them. Online sales tax is destination-based, which means that the sales tax the shopper pays always goes to the shopper’s state and community. Out-of-state retailers don’t contribute anything to other states’ governments and communities, and the Main Street Fairness Act wouldn’t change that.

Then there’s this: “It would be nearly impossible for online businesses to comply with the nation’s patchwork of sales tax laws.” That’s hogwash! Calculating the sales tax due on a purchase is no more difficult than calculating shipping costs in real time, something nearly every online retailer does. With today’s technology, it’s not a problem for online retailers to collect sales tax for every tax jurisdiction in the country. The editorial says that “no business could keep track of every jurisdiction’s fluctuating rates and regulations.” That may have been true at one point, but it’s not true any longer—in fact, our company was founded specifically to solve that problem. Our TaxCloud service, which is available for free, automates all the work associated with collecting sales tax for retailers of any size, even sole proprietorships. We’re doing everything we can to shout from the mountaintops that collecting sales tax online is easy.

The editorial also creates an impression of the Streamlined Sales Tax Governing Board as a shadowy group of taxmen who want to overthrow the country’s tax rules in order to raise taxes. This is ridiculous, and nothing could be further from the truth. The entire purpose of the Streamlined Sales and Use Tax Agreement (SSUTA) is to make collecting sales tax easier for retailers.

The SSUTA is the result of over 10 years of work by 44 states, the business community, and local governments with the goal of reducing the costs and administrative burdens of collecting sales tax for retailers and governments alike. It does this by simplifying common tax definitions (so that the category “candy,” for instance, means the same thing in every state), standardizing reporting procedures so that retailers don’t have to submit different tax returns to each state, and standardizing critical sales tax data (e.g., sales tax rates, tax base definitions, and jurisdictional boundary definitions) so they can be consistently and systematically applied in all states. All this is designed to make it easy for out-of-state retailers to comply with local sales tax laws and collect sales tax for multiple states.

Please note, because this is important: The Streamlined Sales Tax Governing Board does not have the power to raise taxes. States that are members of SSUTA still set their own tax rates through their elected representatives.

The governing board is composed entirely of state officials—elected representatives or appointed officials—four from each SSUTA member state. You can read more about who serves on the governing board here; in fact, the entire agreement that states sign on to when they join SSUTA is available on the Streamlined Sales Tax website, along with a large library of other documents. Plus, any member of the public can attend the meetings of the governing board. It’s hard to imagine how the governing board could have made their organization more open and transparent.

And let’s not forget, no one is forcing states to join SSUTA. Each state decides on its own, through its normal legislative process, whether or not to adopt SSUTA guidelines and join SSUTA. Enactment of the Main Street Fairness Act will not change that.

The editorial ends with this completely untrue statement: “It’s true that online businesses reduce consumers’ sales tax burdens.” Actually, as long as online retailers don’t collect sales tax, they’re increasing consumers’ sales tax burdens. Just because they don’t collect sales tax doesn’t mean sales tax isn’t due—as we said earlier, it is, and when the retailer doesn’t collect it the law requires the consumer to send it directly to the state. We think it imposes a burden on consumers to require them to keep track of their online purchases, calculate the sales tax due on them, and add that amount to their annual tax returns. If online retailers collect sales tax, consumers have to do none of that.

But it’s primarily two groups that are being hurt most by the current situation: local retailers, who do have to collect sales tax and who are losing the fight to compete with online retailers, and local communities, which are suffering massive cuts to vital services because the proceeds from voter-approved sales taxes are rapidly evaporating as more and more retail commerce moves online.

Last year, California lost at least $1.4 billion in unpaid sales tax on online purchases. That’s $1.4 billion that the state should have received and did not, simply because online retailers chose to not collect it.

Would the collection of online sales tax solve all of California’s money woes? No, of course not. Would it be a huge help? Absolutely.

The Orange Country Register itself has written extensively on the local effects of service cuts due to lack of funds: “Money troubles cut into firefighting resources“; “County transit slashes bus service, cuts 400 jobs“; “OC health providers brace for state cuts“; “County’s Health Care Agency slashes services“; “Governor’s cut to housing assistance hits local seniors“; “O.C. law enforcement criticizes proposed early release of prisoners“; “O.C. lays off 210 county workers“; “Local schools brace for more cuts after proposition fails“; “O.C. officials worried about prison cuts.”

Times are tough. Collecting online sales tax can make things a little easier, without creating a new tax or raising taxes.


The Atlantic: “Why aren’t more states pursuing online sales tax?”

April 6, 2011

An article in The Atlantic asks a great question: “Why aren’t more states pursuing online sales tax?”

The article discusses the reasons that states should (and, in all likelihood, do) want to pursue online taxes: the severity of state budget crises, the amount of money online sales tax should bring in. (The Atlantic estimates the total amount of uncollected sales tax to be about $7 billion; as they say, “This isn’t going to solve all of [states’] budgetary problems, but it certainly would help.”)

Then they focus on what they see as the primary obstacle to collecting sales tax online: logistics.

Now think about Internet sales. Online shops are located across the world. An online retailer can sell an item in any state. It would have to have every state’s sales tax built into its website’s framework to provide customers with the correct after tax total cost for their shopping. And that doesn’t even bring local taxes into account, as some cities require additional sales tax as well. This could get quite complicated.

We’re happy to report that the solution to the logistics problem already exists. It’s called TaxCloud.

TaxCloud is a comprehensive sales tax management service that calculates the sales tax due on any purchase anywhere in the country. It also monitors every tax code and automatically updates any changes, so that retailers using TaxCloud stay in compliance with local tax laws with zero effort. TaxCloud also generates state-by-state monthly reports, files state sales tax returns, handles tax exemptions and audits, and more. (To learn more, visit the TaxCloud website.)

TaxCloud is easy to use and takes just 20 minutes to set up. And, since it’s completely free—there’s no set-up fee, no transaction fee, no fee of any kind—it’s perfect for small retailers that don’t have the resources of Amazon.

Calculating sales tax is no more difficult than calculating shipping rates in real time, something most online retailers do. And with services like TaxCloud available for free, we can’t imagine that any online retailer would find it difficult or costly to collect sales tax.


Boston Globe: “Abolish unfair sales-tax break from online retailers”

April 5, 2011
The Boston Globe

The Boston Globe

The Boston Globe has joined the long list of news outlets—the Chicago Tribune, Los Angeles Times, New York Times, Sacramento Bee, and the Minneapolis Star Tribune—in calling for federal legislation to mandate the collection of online sales tax.

In an editorial published last Friday, the Globe outlined the current online sales tax situation and offered a point-by-point rebuttal of critics’ arguments against online sales tax.

We would like to clarify one point in the article that may cause confusion, however. The article states:

Proponents have argued that online retailers shouldn’t have to collect local taxes because they don’t benefit from the local services that those taxes support.

That argument is invalid for a reason the Globe doesn’t mention: Online sales tax is destination-based, which means that it has everything to do with the consumer’s location and little to do with the retailer’s location. No matter where the online retailer is headquartered, the sales tax consumers pay goes to their respective states.

It’s the consumer, not the retailer, who is key when it comes to sales tax. The consumer is paying the sales tax, which is going to the state or local government where the consumer is located and which helps fund community services there—all the retailer needs to do is collect the sales tax along with the consumer’s payment and pass it on to the government. So if a retailer is selling to people in a certain location, then that retailer needs to be prepared to collect sales tax for that location—just as they need to be able to ship to that location.

The editorial also offers this pointed remark:

Amazon and other big retailers should be able to afford the technology required to track and collect sales taxes across multiple jurisdictions.

However, that technology doesn’t need to cost anything. A free, easy-to-use solution is available for small and large retailers alike in TaxCloud.

With TaxCloud, online retailers don’t need to worry about the cost of “track[ing] and collect[ing] sales taxes across multiple jurisdictions.” With TaxCloud, there is no cost—its comprehensive sales tax management service is absolutely free.

TaxCloud:

  • Calculates sales tax in real time
  • Creates detailed monthly reports for retailers
  • Automatically monitors the tax codes of all 13,000 tax jurisdictions and updates any changes
  • Maintains exemption certificates for retailers
  • Files monthly sales tax returns in the 24 states that are members of the Streamlined Sales and Use Tax Agreement
  • And more!

TaxCloud is making it easy for all online retailers, not just “online juggernauts” like Amazon, to collect sales tax.


The mechanics of online sales tax

March 22, 2011

As the argument that online retailers should collect sales tax has been gaining steam, some people have begun wondering about the mechanics of online sales tax collection. Exactly how would it work? What would an online retailer—especially one smaller than Amazon and big-box retailers—need to do to collect sales tax for all 13,000 tax jurisdictions in the country?

The Streamlined Sales Tax initiative has provided the first part of the answer. It’s worked to reduce the costs and complexities of collecting sales tax for retailers and states alike, particularly for retailers that collect sales tax for multiple states. It does this by creating standard tax categories and definitions that every Streamlined member state must adopt—so that, for instance, a candy apple would be in the tax category “candy” in every member state, instead of being considered candy in one state and fruit in another. The actual tax rate isn’t affected—each state still decides on its own the applicable rate and whether items are taxable or exempt—but the standardization and simplification Streamlined provides means that retailers have a much easier time collecting sales tax for multiple states.

But the simplification that Streamlined provides is only part of the answer. The other part of the answer is technology, which is essential to keep track of the 13,000+ tax codes in the country. Technology providers have stepped in with software and services that provide various levels of sales tax management.

Recognizing the key role technology (and, therefore, technology providers) plays in collecting sales tax online, the Streamlined Sales Tax Governing Board established a certification process whereby technology providers have their systems tested and verified by each of the Streamlined member states. Upon successful completion of this process, these companies earn the title of “Certified Service Provider” (CSP) and are authorized to perform all of the sales tax functions for companies. Due to the logistical complexity of the certification process (it takes about a year of coordinated efforts among all member states to certify a CSP), companies may apply to become CSPs only during a brief application period every other year.

FedTax was designated a CSP on July 1, 2010. We are currently the only CSP that is providing its services at absolutely no cost to merchants.

As a Certified Service Provider, we handle every aspect of sales tax calculation, collection, and remittance for our clients. Our TaxCloud service calculates, in real time, the sales tax due on any transaction. It determines whether an item is tax-exempt, manages entity exemption certificates, and automatically integrates changes and updates to tax codes, rates, and jurisdictions—for every jurisdiction in the nation. Finally, TaxCloud keeps track of all collected sales taxes to be remitted by retailers , generates and files all state-by-state sales tax returns, and remits tax payments to all applicable jurisdictions.

What’s more, TaxCloud is extremely easy for anyone to use. Most retailers are able to set up TaxCloud in less than 20 minutes, and it can be integrated into virtually any accounting or e-commerce shopping cart system.

Because we are a CSP, we take full responsibility for any state audit requests on behalf of our TaxCloud clients. In addition, as a CSP we are compensated by SSUTA-participating states, so we can provide TaxCloud to retailers for free. In short, we’re offering a service that handles all sales tax management obligations for retailers at absolutely no cost.

If you’d like to learn more about TaxCloud, check it out here.


LA Times Editorial Board asks readers: Are you an online tax cheat?

March 22, 2011
Los Angeles Times: Are you an online tax cheat?

Los Angeles Times: Are you an online tax cheat?

This editorial in today’s Los Angeles Times covers all the issues in the ongoing debate over sales tax collection. It starts off by outlining on the debate over the affiliate nexus bill introduced by California representative Nancy Skinner. The editorial recognizes the pitfalls of that legislation: that Amazon and other companies will simply drop affiliate relationships with California websites, which is bad for California businesses in the short term (although it will bring in some of the uncollected sales tax—”about $300 million, a fraction of the estimated $1.7 billion California loses each year.” The writers keep the focus where it needs to be, though—the taxes are due and consumers are supposed to report them, but they don’t. The issue is collection, and the most efficient way to improve collection is to shift responsibility to the retailer.

The editorial effectively neutralizes two arguments often made by online sellers: First, that they are neutral as far as sales tax goes. The LA Times says:

Online retailers assert that they are not trying to exploit an unfair advantage over local companies by letting shoppers believe that no taxes are owed, or colluding with them to avoid taxes. But that argument is balderdash on its face. If the Amazons of the world really wanted shoppers to know that they have to pay taxes, they’d include a statement at e-checkout (upfront, not several asterisks and clicks away) telling them to find out from their state and local authorities about adding up and paying the tax. Most are only too happy to promulgate the notion, wordlessly and falsely, that tax obligations dissolve in cyberspace.

The second argument frequently offered by online sellers is that collecting sales tax is too complex. The LA Times points out that it’s not hard to track rates in some 7,500 jurisdictions across the country; it takes a simple software add-on.”

The only point we at FedTax think needs clarifying is that it doesn’t even take software. With TaxCloud, there is no software or database to install. Instead, the relevant tax data is delivered to the merchant or e-commerce shopping cart over a real-time web services API. TaxCloud can calculate correct local sales tax rates in every U.S. tax jurisdiction and account for the type of merchandise, exemptions, and tax holidays. In addition, because we are a Certified Service Provider under the Streamlined Sales and Use Tax Agreement, we take responsibility for tax filings and remittances on behalf of our retailers, who will also appreciate pass-through indemnification by states regarding the accuracy of our rates.

As the editorial points out, with more online buyers than any other state, California has more to gain in uncollected revenue than any other state. Rep. Skinner’s bill, if it passes, is likely to be only the starting point for California. We hope that support for federal legislation is the next step.


“Amazon’s multi-state sales tax battles are a sideshow to the real national solution…”

March 11, 2011

This article by Curt Woodward, senior editor of Xconomy Seattle, points out that the best long-term solution to the problem of uncollected sales tax is for states to join the Streamlined Sales Tax effort and for the federal government to enact legislation such as the Main Street Fairness Act.

The volley of lawsuits, rhetoric from fired-up tax collectors, and Amazon’s hardball response tactics are certainly entertaining to watch from afar. But any real resolution will almost certainly come from a much more boring, slow-moving effort to get state sales taxes on a common source code, and then change the federal laws.

The article goes on to highlight Washington State’s efforts on behalf of the Streamlined Sales and Use Tax Agreement (SSUTA). In fact, it was Washington’s decision to join SSUTA that spurred FedTax’s founders to create TaxCloud, our free, easy-to-use tax calculation and remittance service.

TaxCloud is the only service designed specifically to comply with SSUTA at a scale that supports all online retailers. TaxCloud is easy for retailers to integrate with their current systems—from sign-up to tax collection takes just 20 minutes.


Joan Wagnon, former Kansas Secretary of Revenue, joins FedTax

March 10, 2011

Leader in Streamlined Sales Tax effort will now champion the company’s TaxCloud service

Seattle, Washington – March 10, 2011 – FedTax, a private company committed to making it easy for online retailers to collect sales tax, today announced the appointment of Joan Wagnon as Executive Vice President. Ms. Wagnon brings more than twenty-five years of experience in government and financial services to the role.

“We are honored to have Joan on our team,” said R. David L. Campbell, Chief Executive Officer. “Joan’s experience as secretary of revenue for the State of Kansas and as president of the Streamlined Sales Tax Governing Board are invaluable assets to FedTax as we roll out TaxCloud, our sales tax management service, nationwide.” Ms. Wagnon has also served as chair of the Multistate Tax Commission and on the board of directors for the Federation of Tax Administrators. She has a long record of distinguished public service; in addition to serving as secretary of revenue for the past eight years, a position she left only a month ago, she was also the mayor of Topeka, Kansas, from 1997 to 2001 and a legislator in the Kansas House of Representatives from 1983 to 1994.

In addition to Ms. Wagnon’s extensive background in state and local government, she was president of the Central National Bank in Topeka from 2001 to 2003 and served on their board of directors until 2009.

Ms. Wagnon’s experience with state and local government is particularly relevant as states throughout the nation are facing record budget shortfalls, due in part to a decline in sales tax revenue as more shoppers buy online and avoid paying sales tax. According to a 2009 study by researchers at the University of Tennessee, this year alone states will lose over $23 billion in uncollected sales tax. Although states cannot currently require out-of-state retailers to collect sales tax, the Main Street Fairness Act, which is expected to be introduced soon in Congress, would change that, thus helping states to recover lost sales tax revenue and close their budget gaps. The bill would also level the playing field between local retailers that have to collect sales tax and online retailers that don’t.

In her work with the Streamlined Sales and Use Tax Agreement (SSUTA), Ms. Wagnon strove to make the collection and administration of sales tax easier and more affordable for states and retailers alike. She is thus a natural fit for FedTax, whose TaxCloud sales tax management service makes collecting sales tax easy for retailers of any size, at no cost to the retailer.

“FedTax represents the logical progression of my career,” Ms. Wagnon said. “I’m happy to continue my work in support of fair and neutral sales tax collection as part of FedTax. And I’m looking forward to continuing to make the case that with technology like TaxCloud, it’s easy for any retailer to collect sales tax online.”

TaxCloud instantly calculates the sales tax rate for any address in the U.S., monitors tax codes, and automatically incorporates any changes—so all TaxCloud retailers maintain compliance with sales tax laws with zero effort. TaxCloud also manages exemption certificates, generates reports, and automatically files state-by-state sales tax returns for retailers, all at no charge to retailers.

“TaxCloud reflects the guiding principles of the Streamlined Sales and Use Tax Agreement —that sales tax collection can be easy for any retailer,” said Ms. Wagnon. “FedTax has created a secure, scalable, elegant solution, and best of all, they’re offering it to retailers for free.”

About FedTax

FedTax is a private company that is committed to making it easy for online retailers to calculate, collect, and remit sales tax. It was founded by technology veterans with extensive experience in the large-scale development, deployment, and support of internet-based services in environments with extremely high transaction volumes and financially sensitive information. The management team has been directly involved in building some of the most recognizable brands in e-commerce, including MasterCard, Google, Microsoft, and Expedia.

FedTax has been designated a Certified Service Provider by the Streamlined Sales Tax Governing Board. The company’s TaxCloud service enables e-commerce retailers to easily calculate and remit sales tax across the country. TaxCloud is free to retailers and can be easily integrated into virtually any accounting or e-commerce shopping cart system.

FedTax is headquartered in Seattle, Washington, and has offices in Norwalk, Connecticut, Issaquah, Washington, and now Topeka, Kansas.

Contact:
Beatrice Vaccaro
The Federal Tax Authority
bvaccaro@FedTax.net
+1 206-452-1686