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

August 31, 2012

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.

Pennsylvania adds online sales tax to income tax form

October 23, 2011

According to this article on the Morning Call, next year Pennsylvania’s state income tax forms will include a line for reporting sales tax due on online purchases. In past years, Pennsylvania residents had to use a separate form to calculate and report the sales tax due on their online purchases.

The article describes the reaction of a Pennsylvania resident to the news that she’s responsible for calculating and submitting the sales tax due on her online purchases:

Coplay resident Nereida Troxell said her husband often complains that some Internet sites collect sales tax while others don’t. She had no idea it’s up to the consumer to pay the tax when it’s not collected. Leaning on the customer to track that every time they buy a book or jar of vitamins online so they can pay it at the end of the year doesn’t seem fair, she said.

“That’s messed up,” Troxell said. “No, it doesn’t make sense at all.”

We agree. Doesn’t it make more sense for sales tax to be collected at the point of sale, whether you’re shopping online or in a bricks-and-mortar store?

The article also quotes a small business owner in Pennsylvania on the problems of the current sales tax collection rules:

“Any business on a main street in the country has been fighting [the inequity],” said Dana DeVito, general manager of the Moravian Book Shop. “It absolutely hurts a small business: bricks and mortar and our Internet sales as well.”

The Moravian Book Shop has an online bookstore, but when Pennsylvania residents buy books online, they have to pay a 6 percent sales tax. Residents of other states aren’t charged sales tax because the Moravian Book Shop has no physical presence outside Pennsylvania.

The entire article is well worth reading. It offers a good outline of the current online sales tax situation and how it’s affecting states.