More editorials call for online sales tax collection

June 22, 2011

Two new editorials in local papers are calling for online retailers to collect sales tax.

The first is from the Mississippi Press and offers a clear rationale for collecting sales tax online:

Until the issue is settled, Mississippi and other states will continue to miss out on billions of dollars that are owed to them, and homegrown bricks-and-mortar businesses will remain at a competitive disadvantage with online merchants.

If Mississippi politicians can come up with an effective way to capture sales taxes from items bought on the Internet, then they can shore up education, Medicaid, prisons and other public services that are suffering in the economic downturn.

And in a nice change from so many of the article we see, it makes it clear that sales tax is already due on online sales:

Some politicians have shied away from legislation that would correct the inequity, fearing constituents would accuse them of trying to raise taxes. Fact is, the sales taxes already exist and shoppers are supposed to pay them. They rarely do, of course.

The second, written by California state senator Loni Hancock, is from The Daily Cal, the University of California, Berkeley, paper. Senator Hancock immediately appeals to her university audience:

Despite our love of the written word, Berkeley, along with many other cities throughout California, has witnessed our cherished local bookstores vanish right before our eyes as a direct result of online retailers exploiting a legal loophole to avoid collecting sales taxes from consumers.

She too acknowledges that sales tax is already due on online purchases and makes it clear why she supports online sales tax collection:

It is important to be clear; there is not now, nor has there ever been, a sales tax exemption for Internet sales. However, many Californians are unaware that online purchases are subject to the state’s sales tax.

This lost revenue, which the state tax board estimates to be $1.1 billion annually, is critical, particularly in a time of enormous budget deficits and intolerable cuts to our schools and social safety net.

. . .

Failure to compel these out-of-state online retailers to collect sales tax gives these businesses preferential treatment by attracting consumption in California when they do not actually employ Californians or invest in our state.

This practice, unfortunately, comes at the expense of local businesses and economies.

We highly suggest you read both editorials—they’re well-written, thoughtful arguments for online sales tax collection.

The only thing we’d add is that, although the editorials focus on state legislation, the better solution is federal legislation. States are limited in what they can do by two Supreme Court decisions stating that retailers only need to collect sales tax for states where they have a physical presence. Those same decisions, however, said that Congress can change that.

It’s time for Congress to do just that. The Supreme Court was concerned that it would be too big a burden for retailers to collect sales tax for multiple states. Thanks to technological advances and the simplification measures of the Streamlined Sales and Use and Tax Agreement, that’s no longer the case.

Editorials like these make good arguments for online sales tax collection. Federal legislation is the best way to make that happen.


New Mexico and Mississippi join the list of states considering affiliate nexus legislation

January 25, 2011

New Mexico representative Eleanor Chavez introduced HB 102, affiliate nexus tax legislation, on January 20, 2011. It expands the definition of “engaging in business” in New Mexico as follows:

C. A person with a business with no physical presence in New Mexico is presumed to be engaging in business in New Mexico and has nexus with the state for purposes of due process and interstate commerce if:

(1) that person enters into an agreement with an affiliate physically present in New Mexico, for a commission or other consideration, to directly or indirectly refer potential customers, whether by link or an internet web site or otherwise, to that person; and

(2) the cumulative gross receipts from sales by that person to customers physically present in New Mexico who are referred to that person by all affiliates with an agreement described in this subsection are in excess of ten thousand dollars ($10,000) during the preceding twelve-month period ending on June 30 of any year.

D. The presumption of nexus established in Subsection C of this section may be rebutted by proof that the affiliate made no solicitation in the state that would satisfy the nexus requirements of the United States constitution on behalf of the person presumed to be engaging in business in New Mexico.

In Mississippi, HB 363 was proposed by Representative Jessica Sibley Upshaw. The bill’s description is:  Use tax; provide that person soliciting remote sales through representatives in this state is subject to use tax. Specifically, “A person is presumed to be soliciting or transacting business by an independent contractor, agent, or other representative if the person enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, to the person.”

The list of states considering affiliate nexus tax legislation is growing longer—evidence that, absent federal legislation, states are willing to take matters into their own hands to increase the collection of sales tax due on internet transactions. It also seems that the general level of knowledge about the issues—and about the pros and cons of various approaches—is increasing. Recent editorials in two Chicago newspapers (the Tribune and the State Journal-Register) highlighted the affiliate nexus legislation passed by the Illinois House and Senate—and both pointed out the shortcomings of this type of legislation and the need for a federal solution.


All aboard!?

June 30, 2010

Originally posted 1/22/2010 – Last UPDATED 6/30/2010Wow, there has been a lot of activity in individual States over the last few weeks after the State of New York reported generating $53 million in new sales and use tax revenue from the 30 companies ensnared by their Complex Nexus legislation (often referred to as the “Amazon” Tax – as we have written about before). While Rhode Island and North Carolina passed similar legislation last year, they have not reported how successful their efforts have been. Amazon.com ceased all affiliate operations in RI & NC based upon their adoption of these laws. Amazon has not ceased affiliate operations in New York, but has been engaged in an ugly court battle to challenging the validity and constitutionality of the law. California and Hawaii also considered (but did not pass) similar legislation late last year.

41 States have already identified significant budget shortfalls, projecting the worst budget shortfall ever! Our friends at The Center on Budget and Policy Priorities just released a detailed (and terrifying) report outlining a projected $194 billion deficit for 2010, and another $180 billion deficit for 2011.

As of this writing four states five states (just added Vermont) seven states (just added Maryland & Illinois) eight states (added California) nine nineteen states (just added Connecticut) added a bunch more have considered some sort of sales (use) tax legislation:

STATE BILL INTRODUCED EFFECTIVE TYPE SUMMARY STATUS
ALL (FEDERAL LEGISLATION) HR5660 7/1/10 Main Street Fairness Act Gives states the right to require remote sellers to collect sales tax.  States must be members of the Streamlined Sales and Use Tax Agreement. Introduced into Congress by Rep. Delahunt (D-MA).  Has supporters from both the Democratic and Republican parties, as well as support from states.
Arkansas Entity Isolation Existing legislation prohibits merchants from practicing entity isolation (i.e. claiming that web operations and store operations are unrelated). Entity isolation legislation in effect.
California Entity Isolation

Notification

Existing legislation prohibits merchants from practicing entity isolation (i.e. claiming that web operations and store operations are unrelated).

Separate legislation has been considered to require merchants notify CA purchasers during checkout that they may owe Use tax.

Entity isolation legislation in effect.  The proposed new legislation on Notification passed the Senate 2/18/10 but failed to make it into final budget package.
Colorado HB1193 1/20/10 1/1/10 Notification

Reporting

Requires online retailers to provide CO purchasers with a summary warning on web site and invoices and requires retailers to report this information to the state annually.  Also requires retailers with over $1 mill annual sales to send a 1099-type notice to the customer.  Retailers can avoid these requirements by collecting the sales tax. Signed into law 2/24/10.  Affiliate Marketing rules were considered but not included in the final law.
Connecticut RB5481 3/8/10 Affiliate Marketing ($2,000 threshold) Died in Committee 5/5/10
Florida SB2552 Other Proposes FL allocates money to build software requiring credit card companies to collect sales tax. Unlikely to pass.
Georgia SB512 3/17/10 Contingency Fees Authorized GA to pay contingency fees to lawyers to sue retailers to enforce collection obligations. Passed Senate 3/26/10
Illinois SB3353 Affiliate Marketing ($10,000 threshold) Bill ‘held over’.
Indiana Entity isolation Existing legislation prohibits merchants from practicing entity isolation (i.e. claiming that web operations and store operations are unrelated). Entity isolation legislation in effect.
Iowa HF2510 3/1/10 Affiliate Marketing Died in Committee 3/2/10.
Maryland SB824 Died in Committee before the end of the 2010 legislative session.
Mississippi SB2927 1/20/10 Affiliate Marketing ($0 threshold) Died in Committee 2/2/10
New Mexico HB50 1/15/10 Affiliate Marketing ($10,000 threshold) Died in Committee 5/3/10
New York 6/1/08 Affiliate Marketing ($10,000 threshold) NY reported that it generated $53 million in new use tax from the 30 companies affected by its Affiliate Marketing law. Signed into law April 2008
North Carolina 4/23/10 Affiliate Marketing Signed into law in 8/5/09.
Oklahoma HB2359 1/5/10 7/1/10 Notification Requires retailers to post a notice to OK residents on the checkout page that they may be liable for use tax, and to disclose this on the invoice. Signed into law 5/28/10.
Rhode Island 7/1/2009 Affiliate Marketing ($5,000 threshold) Signed into law 6/30/09
Tennessee SB1741, HB1947 3/19/09 Affiliate Marketing

Notification

Died in Committee 4/20/10
Vermont HB661 1/29/10 Affiliate Marketing ($10,000 threshold) Died in Committee.
Virginia SB660 1/21/10 Affiliate Marketing ($10,000 threshold) Died in House subcommittee 2/24/10


Please Note:  The information provided on this web site is intended to stimulate discussion about sales tax issues affecting online merchants.  While we make every effort to provide accurate information, readers should refer to their own tax counsel, state and local laws and other source documents for more detail.

All of this activity at the state level should provide ample indication to our Senators and Representatives in Washington D.C. that federal action is necessary to prevent a flood of varied state-by-state laws. Urge your Senators and Representatives to ask around on the hill, and find out what is holding up introduction (and passage) the the Main Street Fairness Act!

Here at Fed-Tax.net we are eager to help all Internet merchants easily and automatically calculate and remit correct local sales tax for every jurisdiction in the United States – at zero cost to merchants. We will do this regardless of which system ultimately prevails, state-by-state affiliate taxes, or a federally authorized Streamlined Sales and Use Tax Agreement.

Our TaxCloud service will launch later this year (watch here for our preview release announcement soon), and will demonstrate beyond any shadow of doubt that it is no longer overly burdensome (technically or financially) for remote sellers to comply with all local sales tax laws. We are building TaxCloud to activate the opinion of the Court as originally penned by Justice Stewart in 1967 (and re-affirmed in 1992) which invited congress to act once “the skill of contemporary man and his machines” has solved this problem.

UPDATE – COLORADO SB 1193 2/2/2010: Last night the Colorado House of Representatives voted (on “Shall the bill pass?”) 33 (Yes) to 32 (No). So, they PASSED SB 1193 – Here is the Current (Amended) Bill now on its way through the Colorado Senate.

UPDATE – VERMONT HB 661 Introduced 2/3/2010: Just saw that Vermont also introduced their own version of an affiliate tax late last week. Sorry we missed it.

UPDATE – Colorado SB 1193 Revised 2/8/2010 – the Colorado Senate has revised SB 1193 significantly.

UPDATE – Maryland SB 824 Introduced 2/10/2010

UPDATE – Illinois SB 3353 Introduced 2/10/2010

UPDATE – California Senate passes AB 8 2/18/2010

UPDATE – Colorado SB 1193 is now LAW – The Governor of the State of Colorado – see Emergency Regulation 39-21-112.3.5.

UPDATE OKLAHOMA HB2359 is now LAW. It requires retailers to post a notice to OK residents on the checkout page that they may be liable for use tax, and to disclose that information on any invoice sent to the customer.