MA Committee on Revenue endorses bill to join Streamlined

August 19, 2011

According to a State House News Service article in the Boston Herald, Massachusett’s Committee on Revenue last week endorsed a state bill that would allow Massachusetts join the Streamlined Sales and Use Tax Agreement (SSUTA).

Although the article refers to the bill as H 3672, our research shows that H 3672 is a bill on accessible housing for people with disabilities. It’s our guess that this is simply a typo in the article and that the actual bill the Committee on Revenue approved is H 3673, a revision of H 1695 that the committee “reported favorably” on August 15 and that aims to “promote sales tax fairness for Main Street retailers.” H 3673 would “authorize the commissioner to petition the Streamlined Sales Tax Governing Board to allow the commonwealth to become an associate or full member of the Streamlined Sales Tax Governing Board.”

We strongly support the commonwealth’s efforts to simplify and standardize their sales and use tax laws by joining SSUTA—we even went up to Boston in April to testify in support of the bill. Our testimony read, in part:

This bill is very important to alleviate the imbalance being felt by local retailers across the state, as increasingly they are seeing consumers browse their stores and ask clerks questions, only to go home and buy from online retailers to save on sales tax. Over time, the vanishing sales tax revenue has hurt not only the state, which is losing the sales tax proceeds, and local retailers, who are losing business, but even Massachusetts residents themselves, as the loss of sales tax revenue has resulted in dramatic cuts to local services, including police protection, fire protection, and schools.

In addition, by adopting this legislation Massachusetts would send a clear message to Washington, D.C., that it is time for federal action to correct the growing inequity between local retailers that have to collect sales tax and online retailers that do not. It’s time to shift the burden of calculating, reporting, and remitting tax on online purchases from individual consumers to online retailers. It’s time for local communities to start receiving the sales tax revenue they are due, so they can stop cutting services because of lack of funds. It’s time to recognize that collecting sales tax on online purchases is fair, easy, and the right thing to do. It’s time to pass the Main Street Fairness Act.

True, joining SSUTA is just a first step toward resolving the unfair practice of requiring local small businesses to collect sales tax while not requiring the same of larger, and frequently more technologically sophisticated, out-of-state retailers. It’s only a first step, but it’s a crucial step. Momentum on this issue is building, and Massachusetts now has the opportunity to stand united with twenty-four other states and say that the problem of uncollected sales tax, which affects nearly every state in the nation, needs a national solution, and that national solution has been provided by SSUTA.

If Massachusetts does become the latest state to join the Streamlined Sales and Use Tax Agreement, it would simplify Massachusetts’ sales tax regulations, making it easier for businesses (particularly those outside Massachusetts) to collect Massachusetts sales tax.

We applaud the Committee on Revenue for approving this sensible legislation, and we hope to see Joint Committee on Rules show the same wisdom. We look forward to the Bay State  becoming the 25th member of the Streamlined Sales and Use Tax Agreement.


Article looks at details of Main Street Fairness Act

August 11, 2011

An article by Sylvia Dion on SalesTaxSupport.com is unusual for its detailed examination of the Main Street Fairness Act and the Streamlined Sales and Use Tax Agreement (SSUTA). If you’re curious about exactly what the Main Street Fairness Act does and how it affects SSUTA, we recommend you take a look—it’s both thorough and fair—which we can’t say very often when tracking this subject.

States where internet purchases are taxableHowever, it does have one error that we must correct:

The issue of whether sales made over the internet should be subject to sales tax has been widely discussed for at least decade now . . . .

As our regular readers know, sales tax is already due on online purchases—the issue that’s been debated is not “whether sales made over the internet should be subject to sales tax” but whether online retailers should collect sales tax just as bricks-and-mortar retailers do.

The fact that online purchases are already subject to sales tax, and always have been, is one of the most common misconceptions about online sales tax. For others, see our post on the common myths and facts about online sales tax.


Internet Tax Freedom Act does NOT ban sales tax

August 10, 2011
Internet Tax Freedom Act Amendments Act of 2007

Internet Tax Freedom Act Amendments Act of 2007 (110th congress - H.R. 3678)

Although we see less of this now than we used to, there is still some confusion over the Internet Tax Freedom Act and how it affects sales tax on online purchases.

The truth is, it doesn’t. The Internet Tax Freedom Act (ITFA) was passed in 1998 and renewed/extended in 2007 (it’s now good through 2014) to ban taxes on internet access and internet-only goods or services, such as email and bandwidth. But ITFA expressly did not ban sales tax on online purchases (though it did say that sales tax on online goods must have the same rate as the same goods purchased offline).

As the Main Street Fairness Act has been getting a lot of press attention lately, we’ve seen a few articles, such as this one, that have mistakenly attributed the current rules on online sales tax (including the role of nexus) to the Internet Tax Freedom Act. So consider this an addition to our earlier list of mischaracterizations about online sales tax: The Internet Tax Freedom Act does not ban sales tax on online purchases.


Press on the Main Street Fairness Act

July 31, 2011

The moment people heard about the introduction of the Main Street Fairness Act, everyone started buzzing (in chronological order – we will endeavor to keep this list updated – Updated: 8/4/2011 @ 08:48 EDT):

  1. Article in PoliticoDick Durbin to introduce online sales tax bill
  2. Press release by FedTax (supporting): Small Businesses Applaud Senator Durbin and Representative Conyers for Introducing Main Street Fairness Act
  3. Article in the Los Angeles TimesAmazon.com sales-tax issue taken up by Congress
  4. Press release by the National Retail Federation  (supporting): NRF Says Internet Sales Tax Bill Will Help Preserve Main Street Jobs
  5. Article in the National JournalDurbin Moves to Tax E-Commerce
  6. Article in Crain’s Chicago BusinessDurbin proposes Internet sales tax
  7. Article in TechFlashCongress to take up Internet sales tax issue plaguing Amazon
  8. Press release by the National Taxpayers Union  (opposing): Beware of Fiscal Potholes in Congress’s Latest “Main Street Fairness Act,” Taxpayer Group Warns
  9. Statement by Americans for Tax Reform (opposing): Internet Tax Introduced by Democrats Durbin, Conyers
  10. Press release by NetChoice (opposing): NetChoice Strongly Opposes ‘Main Street Fairness’ Act From Congressional Democrats
  11. Article in The HillDurbin introduces online tax bill, has Amazon support
  12. Article in Internet RetailerFederal sales tax bill introduced
  13. Press release by the Retail Industry Leaders Association (supporting): Main Street Fairness Act Introduction the First Step Toward Fair Competition
  14. Press release by Sears (supporting): Sears Holdings Applauds Senator Durbin’s Introduction of the Main Street Fairness Act
  15. Press release by Sen. Durbin: Durbin, Conyers, Welch and Others Introduce Bill to Level the Playing Field for Main Street Retailers
  16. Letter from Amazon (supporting): July 29, 2011 Letter from Amazon to Senator Durbin in Support of Main Street Fairness Act
  17. Press release by the National Conference of State Legislatures (supporting): NCSL Announces Support for Main Street Fairness Act
  18. Article in PoliticoAmazon, eBay split over online sales tax bill
  19. Article in ReutersSenator supports online sales tax reform
  20. Article in TechFlashA national e-commerce ‘Amazon tax’ law draws harsh reaction
  21. Article in UPIAmazon capitulates on state taxes
  22. Article in Gather:  Congressional Support for Uniform Online Sales Tax
  23. Article in Rave NewsCongress Looking At Balancing The Online Scales With Main Street Fairness
  24. Article in Accounting TodayCongress Introduces Bill to Collect Online Sales Taxes
  25. Article in PC MagazineDemocrats Introduce Federal Bill to Collect Online Sales Tax
  26. Press release by the International Council of Shopping Centers (supporting): Shopping Center Industry Supports Efforts to Level the Field between Internet and Brick-and-Mortar Retailers
  27. Article in DailyTechIllinois Senator’s Business Tax Bill Gains Supporters, Amazon is Onboard
  28. Article in The Orange County RegisterCongress jumps into ‘Amazon sales tax’ issue
  29. Article in JCKNational Internet Sales Tax Bill Introduced in Congress
  30. Statement by FreedomWorks: (opposing): In the Shadow of the Senate: A New Tax Emerges
  31. Article in MichiganLiveSales tax for online retailers? John Conyers sponsors bill to ‘level the playing field’
  32. Article in Computer WorldTech groups oppose Internet sales tax bill
  33. Article in WebProNewsMain Street Fairness Act Draws Amazon Support, eBay Opposition
  34. Article in EcommerceJunkieCongress Eyes Federal Sales Tax Bill
  35. Article in GeekOSystemAmazon Supports Internet Sales Tax Law
  36. Press release by Jewelers of America (supportive): JA Applauds Introduction of ‘Main Street Fairness Act
  37. Press release by the ITIF (supportive): Statement on New Internet Sales Tax Legislation S. 1452
  38. Article by the Performance Marketing AssociationSen. Durbin Proposes Federal Sales Tax Solution
  39. Press release by the Electronic Retailers Association (opposing): New Efforts To Tax and Regulate Electronic Retailers A Bad Idea
  40. Article in the National Jewelers NetworkFederal Internet sales tax law back on the table
  41. Article in IDEX OnlineMain Street Fairness Act Introduced, JA ‘Applauds’
  42. Article by CompTIA (The IT Industry Association): Main Street Fairness Act Introduced: Requires Interstate Sales Tax Collection
  43. Press Release by the Information Technology and Innovation Foundation (supportive): Statement on New Internet Sales Tax Legislation S. 1452
  44. Article in the Technology Liberation FrontInternet Taxes, “Main Street Fairness” & the Origin-Based Alternative
  45. Article in OCMetroAmazon supports Main Street Fairness Act
  46. Article in TechZone360Democrats Propose Bill to Collect SalesTax from Online Retailers
  47. Article in the Rapid City JournalJohnson’s bill would tax sales by online retailers
  48. Article by ADOTASAssociations Rail Against Federal Online Sales Tax Bill
  49. Article by ZippyCartPoliticians Push for Nationwide Tax on Ecommerce Solutions
  50. Article by Washington Business JournalA national e-commerce ‘Amazon tax’ law draws harsh reaction
  51. Article by NorthJersey.comInternet sales tax legislation would impact North Jersey businesses
  52. Article by FITSnewsWeb Tax: This’ll Help (Not)
  53. Editorial in The Washington TimesUnplug the Internet tax
  54. Editorial in the Denver PostOnline tax bill isn’t so simple
  55. Article in CaliticsAmazon’s Long War on Sales Taxes
  56. Press release from the National League of Cities (supportive): Main Street Fairness Act Introduced in Congress
We noticed that the press releases opposing the legislation have, thus far, either relied on vague language without really engaging with the bill (the National Taxpayers Union) or repeated one of the common mischaracterizations of the bill that we recently blogged about (Americans for Tax Reform, NetChoice). Once again: The bill does not create a new tax or raise taxes, and technology and the simplified sales tax laws the bill requires together make it easy for businesses to collect sales tax for multiple states.

H.R. 2701 (the Main Street Fairness Act) introduced in the House of Representatives

July 30, 2011

UPDATED: 7/31 @ 0:00 – The GPO just released the PDF : 112th Congress – H.R. 2701 (the Main Street Fairness Act)

Although the Senate’s Main Street Fairness Act has been receiving the lion’s share of attention, the House of Representatives had its own (identical) version of the bill introduced yesterday.

Rep. John Conyers (D-MI) introduced H.R. 2701 along with his cosponsors Rep. Peter Welch (D-VT) and Rep. Heath Shuler (D-NC).

Here’s what Conyers was quoted as saying in a press release issued by Sen. Durbin, sponsor of the Senate bill:

“I am pleased to join my colleagues Senator Durbin, Congressman Welch and Congressman Shuler in introducing the Main Street Fairness Act,” said Conyers. “This bill will level the playing field for local businesses by ensuring that online retailers collect the same sales taxes that brick-and-mortar retailers already do.  This will help our state and local governments avoid devastating layoffs and cuts to essential services vital to the well-being of our local communities.”

The press release is worth reading for the quotes from other lawmakers, as well as business leaders.

We were interested to see the approach taken by the politicians quoted in the press release. We have been particularly excited about how the bill makes it easier for small businesses to collect sales tax; our TaxCloud merchants have let us know how important that is to them. But the lawmakers are thinking about their constituents back home—the ones whose Main Street stores are suffering in this economy and who are seeing their libraries and parks close for lack of funds:

“Our bill levels the playing field to give Main Street businesses a fighting chance,” said Welch. “When a consumer can walk into a store, try out a product and then go home and buy it online without paying sales tax, Main Street businesses and downtowns lose. Our bill will level the playing field and bring much-needed fairness, strengthen our Main Street businesses, create jobs and revitalize our downtowns.” . . .

“Over the years, Main Street businesses in South Dakota have struggled to compete with internet vendors who skirt sales tax rules, which leaves brick-and-mortar businesses at a competitive disadvantage and state governments losing billions in uncollected sales taxes,” said [South Dakota Senator Tim] Johnson. “The Main Street Fairness Act will help support businesses in our state and also bring in $30 to $40 million in lost sales tax revenue at a time when important programs are being cut left and right. Governors across the country, including South Dakota Gov. Dennis Daugaard, support this commonsense legislation that will streamline collection rules and improve compliance.”  

“Rhode Island businesses and workers suffer from an unfair tax disparity that harms many local small businesses and benefits large out-of-state e-retailers. This bill would correct that inequity and help Main Street businesses compete. It has broad support from both mom and pop shops and large businesses like Amazon.com and at a time when states like Rhode Island are struggling with their budgets this bill would be a boost,” said [Rhode Island Senator Jack] Reed.

(emphasis added)

We’re glad to see DC legislators acting on behalf of those they represent and working to help their home states, particularly in this troubled economy. We hope, and expect, to see more legislators joining those who already support the House and Senate bills in the coming days.


Business Insider article contains misinformation

July 22, 2011

An article in Business Insider on online sales tax collection contains so much misinformation—including a truly ridiculous assertion, addressed at the end of this post—that we had to respond.

– On the fact that currently, only retailers with a physical presence in a state—an office, warehouse, or even salesperson—are required to collect sales tax for that state, the article says that makes sense:

Taxes are meant to fund government expenses, but if an individual or corporation cannot receive any benefit from that government expense, then that individual or corporation should not be taxed for that expense.

But of course, no one is suggesting that the retailer be taxed—only that the retailer collect sales tax, which is indeed paid by those who benefit from what sales tax pays for. Sales tax funds community services and initiatives such as schools, police, parks, libraries, and more. When an online retailer collects sales tax, that tax is remitted back to the state where the consumer—who, again, paid the tax—is located, and it funds services in the consumer’s community.

Yes, sales tax should be paid only by those who benefit from the services sales tax funds. And that’s exactly what happens when online retailers collect sales tax.

– On states’ adopting legislation that requires online retailers to collect sales tax, the article simply gets its facts wrong:

States need this money and are now finding creative ways to structure their tax codes to ultimately require Internet transactions to include a state’s sales tax.  So far, 11 states have enacted some legislation to tax these online retailers, mainly targeting the big fish. 

Not at all. First, online transactions have always been subject to sales tax. No state with sales tax needs to alter its tax codes, creatively or not, to make online transactions subject to sales tax—they already are. Second, no state is enacting legislation to “tax these online retailers, mainly targeting the big fish.” Again, states that are implementing new legislation are asking online retailers to collect sales tax, not pay it. It’s an important distinction.

Business Insider article suggests internet is a lawless pirate's land devoid of any jurisdictional authority.

Business Insider article suggests internet is a lawless pirate's land devoid of any jurisdictional authority.

– On internet transactions in general, the article gets truly ludicrous:

In theory, the Internet is a separate location and not part of any state or country.  Transactions that occur in the Internet cannot be claimed to have occurred in a state or country.  

This is simply absurd, even “in theory.” By this logic, there would be no way to stop internet fraud or any cybercrimes—if the event did not occur in any state or country, it wouldn’t be subject to any laws. Although this may upset the pirates in the audience, the suggestion that transactions on the internet are not subject to state or national law is simply ridiculous.

Nothing on the internet happens “nowhere.”

Internet shoppers (and retailers) are located in a physical jurisdiction and are subject to laws of that jurisdiction (including city, county, state, and federal laws). Anti-money laundering and anti-terrorism laws (among others) in the US and around the world all agree on this matter.

Black pearl (necklace) is already subject to sales tax

Black pearl (necklace) is already subject to sales tax in 45 states

Yes, even if you buy a black pearl online, it is still subject to sales tax. However, if you buy it from Blue Nile or Amazon, they probably will not collect the sales tax due—so don’t forget to report your purchase to your state and remit the sales tax.


Lax tax for e-commerce cost US 260K jobs

July 19, 2011
Missouri News Horizon

Missouri News Horizon: Online shopping costing jobs

According to an article in the Missouri News Horizon, Dr. William Fox, director of economics at the University of Tennessee Center for Business and Economic Research and the co-author of a 2009 study on state and local revenue losses due to uncollected sales tax on online purchases, has presented new research at the Southern Legislative Conference in Memphis.

Although many at the conference have been focused on Amazon and its recent actions regarding sales tax, Dr. Fox looked at the larger picture and examined the effects of e-commerce not only on state revenue but also on jobs:

“The Amazon part is only about 5 percent of e-commerce,” he said.

But Fox said his center’s research estimates the total of e-commerce is about $4 trillion, with about $46 billion in taxes due across the nation. He said most states surveyed are going to lose about $200 million or more this year due to uncollected taxes on e-commerce.

But the issue goes far beyond uncollected sales taxes, according to Fox. There was consistent growth in retail employment until about 2000, a rate of about 2 percent per year.

“Since 2002, retail employment in the U.S. has absolutely flattened out,” Fox said.

To put a sharper focus on it, Fox told lawmakers Walmart hires five workers for every million dollars in sales. Amazon hires one.

“As we move from people who buy on Main Street, and they move to buy from Amazon because of the tax subsidy that is implicit in the way we pay, we cost the economy four jobs,” he said. . . .

Fox figures the costs to the country because of e-commerce in general is 260,000 retail jobs.

“This is not a little issue. It’s not a small concern,” Fox said. “They don’t need a subsidy to operate. E-commerce associated with business-to-consumer sales this last year grew 18 percent, while commerce on Main Street essentially grew zero percent.” (emphasis added)

To put that figure of 260,000 lost jobs in perspective: The last jobs report indicated that just 18,000 jobs were added in June, giving rise to speculation about a double-dip recession and raising the unemployment rate to 9.2%.

This data is critically important. With unemployment still high and even rising a year after the recession technically ended, everyone is concerned about jobs and job growth—but this is the first time we’ve seen figures on the effects the online marketplace is having on jobs.

North Carolina’s Secretary of Revenue, David W. Hoyle, also presented at the conference, and the article offers more details on what he had to say about Amazon and North Carolina’s efforts toward collecting sales tax online.

We highly recommend you read the entire article.


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.


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.


Chicago Tribune editorial to Congress: Stop the insanity, pass federal online sales tax legislation

July 12, 2011
Chicago Tribune

Chicago Tribune: Close the sales tax loophole

A great editorial in the Chicago Tribune offers a well-reasoned argument for the Main Street Fairness Act (although it isn’t mentioned by name.) In discussing California’s recent sales tax legislation and Amazon’s response to it, the author makes a clear case for federal, rather than state, legislation:

Amazon argues that only the federal government can set rules governing interstate commerce … and it has a point. That’s why this gigantic loophole, this gross unfairness to local stores everywhere, needs to be closed by Congress.

As our regular readers know, we completely agree, and it seems that more and more media outlets are coming to the same conclusion. We’ve blogged recently about editorials in the Washington Post, the Press Enterprise (Riverside, CA), the Baltimore Sun, and the Mississippi Pressand we expect more and more editorials in favor of federal legislation will appear in the days to come.

What we haven’t seen in other editorials, however, is how the lack of online sales tax collection has affected our local communities, which this Chicago Tribune editorial explores:

City neighborhoods and suburban towns were built around retail districts that are now becoming obsolete. In-store sales of food, clothing and just about anything that can fit into a car trunk have moved off to the big-box discounters. City planners and community development types scramble to fill the void, but how many fitness centers, nail salons and storefront churches does a community need?

Vacant stores are a double-whammy because they also pay almost no property taxes. Nor do they help pay for live entertainment at the annual Sidewalk Sale, or pay into the streetscape improvement fund or sponsor your kids’ Little League teams.

. . .

At last count, Illinois was losing an estimated $153 million annually in unpaid sales and “use” taxes due to online purchases. This for a state that has $4.5 billion in overdue bills. This for a state that just cut funds to provide decent burials for the indigent and to test public school kids to find out if they’re learning to write.

Of course, there’s no going back to the days before online shopping, nor would most of us want to. But the current situation is untenable.

The editorial ends with by calling Congress to action:

In Washington, Republicans and Democrats are getting down to the fine strokes about what programs to cut and what loopholes to close. President Barack Obama says “everything” needs to be on the table.

By everything I trust he’s including the online sales tax scam. It’s a loophole that’s only going to get bigger. It’s grossly unfair to local, taxpaying, Little League-sponsoring stores. 

Hear, hear!


StorefrontBacktalk: It’s up to Congress

July 7, 2011

A new article in StorefrontBacktalk gives a very thorough and balanced background on online sales tax collection, framed by a discussion of California’s new affiliate nexus legislation.

The article ends by saying that it’s up to Congress to settle the issue, not states:

Ultimately, it will be up to Congress to decide how it wants state sales taxes to be collected on out-of-state sales. In fact, in the Quill decision two decades ago, the Supreme Court invited Congress to step in, and assumed that it would. . . .

Whether states can use affiliate marketing as a “hook” to force the payment of sales tax is only a short-term issue. We will wait for Congress to act. Or not.

We absolutely agree: We need federal legislation, not state-by-state laws, to determine how retailers collect sales tax. And in fact, we expect Congress to act soon—the Main Street Fairness Act is likely to be introduced this summer.

The benefits of federal legislation like the Main Street Fairness Act are many, but in particular, it’s a better solution than the affiliate nexus laws so many states are enacting because it wouldn’t hurt the small businesses that rely on affiliate income. (When California passed its affiliate nexus legislation, Amazon immediately canceled their 25,000 affiliate relationships in the state—which means 25,000 affiliates suddenly lost their income.) In fact, the Main Street Fairness Act would actually provide an incentive for states to make it easier for small businesses to collect sales tax for multiple states.

The Main Street Fairness Act would allow only those states that have adopted the simplification measures of the Streamlined Sales and Use Tax Agreement (SSUTA) to require all retailers to collect sales tax. SSUTA simplifies and standardizes sales tax regulations to make it easy for retailers to collect sales tax for multiple states—which means that the Main Street Fairness Act gives states an incentive to make multistate sales tax collection easy for retailers.

The Main Street Fairness Act is the right solution for everyone involved:

  • states, which need to recover the billions of dollars in sales tax currently going uncollected
  • retailers, which need their sales tax collection obligations to be standardized and predictable, without damaging small businesses
  • consumers, who should no longer be expected to keep track of and report the sales tax due on every internet purchase (you have been doing that, right?)

We look forward to congressional action soon to introduce and pass the Main Street Fairness Act.


Macy’s VP voices support for Streamlined, federal legislation

July 7, 2011
Bay Area BizTalk

Bay Area BizTalk: Amazon Tax

In a Bay Area BizTalk post on the San Francisco Business Times website, Macy’s vice president and tax counsel Frank Julian voices his support for the Streamlined Sales and Use Tax Agreement (without mentioning it by name) and federal legislation on online sales tax:

“The state-by-state approach we think is the wrong way to address this…. It doesn’t bring about the simplification and uniformity we think is critical,” said Frank Julian, vice president and tax counsel at Macy’s Inc. “We would support congressional legislation that brings about simplification, uniformity and vendor compensation in exchange for making all sellers collect tax, but it has to do all of that. It has to be a package. You can’t take one side of the equation without the other.”

Make no mistake, Macy’s and most small retailers who now count Amazon as competition want the giant online retailers to pay sales tax — it’s only fair and levels the playing field, they say. But to work and to be constitutional, it must be done through federal legislation, and it must at the same time make it easier and more economical to collect sales tax.

We couldn’t agree more. And Amazon CEO Jeff Bezos has said much the same thing.

The article also includes a good illustration of why streamlining and simplification is so desperately needed:

Consider that every city and county in California has a different tax rate. Then consider that in some states a Snickers is considered — and thus taxed as — a candy bar while a Nestle Crunch bar is not considered candy because it contains rice. Some states tax fruit juices differently based on just how much fruit is in the drink, and not all states tax clothing.

The Streamlined Sales and Use Tax Agreement (SSUTA) eliminates all that complexity and makes it much easier for retailers to collect sales tax for multiple states. Federal legislation, in the form of the Main Street Fairness Act, would provide an incentive for states to join SSUTA and ease the burden on retailers.

The rest of the article is also worth reading for its analysis of what online sales tax collection means for both big box retailers and mom-and-pop stores; we highly suggest you check it out.

We do have to disagree with one conclusion the article draws: that collecting sales tax for multiple states is too difficult for small online retailers.

Yes, we need the simplification provided by SSUTA. But for small online retailers worried about the potential costs of collecting sales tax, we have just one word: TaxCloud.

We created TaxCloud especially for those small retailers without the resources of an Amazon or Walmart who are faced with collecting sales tax and wondering how they can do it. We’ve made it easy and, perhaps even more important, we’ve made it completely free.

Once again, we have to hope that Congress hears this voice of support for Streamlined and federal legislation. The recent passage of affiliate nexus legislation in California has brought the issue to the forefront of the national conversation. It’s time for Congress to listen to that conversation and finally take action.


Tennessee Governor Bill Haslam urges Congress to pass federal legislation on online sales tax

July 6, 2011
Tennessee Gov. Bill Haslam willing to take lead on Internet sales tax

Tennessee Gov. Bill Haslam willing to take lead on Internet sales tax

Tennessee Governor Bill Haslam (R) said today that he is willing take the lead among the nation’s governors in urging Congress to pass federal legislation on online sales tax. The full details can be found in an article in the Memphis-based newspaper The Commercial Appeal.

He said Tennessee is already losing between $300 million and $500 million a year on untaxed Internet sales — a growing number since the states and Congress have been unable for more than a decade to agree on a “streamlined sales tax” process enabling online retailers to collect taxes easily for the nation’s thousands of state and local taxing jurisdictions.

“It’s not going to begin eroding the state’s tax base; it already is. Something has to happen nationally. The whole streamlined sales tax is a big deal, and I’m more than willing to play a leadership role,” Haslam said. “It has to be addressed on a national level or we’re going to keep playing these kinds of move-around games.”

We’re thrilled to see Gov. Haslam step forward and take the lead on the issue.

As our regular readers are well aware, more and more states (like California) are striking out on their own to try and solve this problem by enacting affiliate nexus legislation. There is clearly a need to recover the sales tax revenue currently going uncollected while also eliminating the blatant disparity of tax policy between local and online retailers. But these state-by-state solutions all have problems—only federal legislation can bring back uncollected sales tax revenue, level the playing field for local and online retailers, and make collecting sales tax easier for retailers.

The Streamlined Sales and Use Tax Agreement (SSUTA), which the governor refers to, simplifies and standardizes sales tax regulations to make it easier for retailers to collect sales tax for multiple states. The Main Street Fairness Act will authorize only those states (24 so far) that have adopted the simplification measures of SSUTA to require all retailers to collect their sales tax.

Governor Haslam has made it very clear that he supports federal legislation embodied by the much-anticipated Main Street Fairness Act. We have also heard similar supportive statements and outright pleas from other governors this year as well. We will start a separate post to detail the complete list—in the meantime, way to go Governor Haslam and Tennessee!


SFGate: The next step for California

July 5, 2011
SFGate

SFGate: What's next for California sales tax collection

A new column on SFGate.com, the San Francisco Chronicle website, speculates on what’s next for online retailers and state legislators now that California has passed affiliate nexus legislation.

The author points out that neither Amazon nor Overstock—both of which immediately dropped their California affiliates upon the bill’s passage—are currently collecting California sales tax, even though the new law has gone into effect. How will the state respond? According to Betty Yee, a member of California’s Board of Equalization:

“So, we’ll bill them at the end of this quarter, based on estimates either they provide or we come up from other data sources. Then, if they don’t come forward and pay, we’ll consider other courses of action.”

It seems pretty unlikely that they’ll “come forward and pay,” and according to the article, litigation is likely the next step. In fact, Amazon is currently in the middle of a lawsuit challenging New York’s affiliate nexus law—which has, thus far, been upheld.

One could argue, of course, that because they’ve dropped their California affiliates, Amazon and Overstock no longer have nexus in the state. However, Amazon, at least, has subsidiaries with offices in the state, such as Lab126 in Cupertino, which designed the Kindle. Under the California law, those subsidiary locations may be sufficient to establish nexus for Amazon—a matter that now seems destined to be determined by the courts.

Unless, that is, federal legislation renders the question moot. Our favorite part of the column is the section with the header, “Over to you, D.C.” We’ve long argued that federal legislation is the best solution for both states and retailers, and we’re happy to see that on that, at least, everyone seems to agree:

If there’s one thing both sides of the online tax fight appear to agree on, it’s the need for the feds to step in.

“What we’re trying to do is to get Washington to clarify nexus, and revise the Quill decision,” said [Bill] Dombrowski, [president of the California Retailers Association] who is also a board member of the National Retail Federation.

“The right way to fix this is with federal legislation,” Amazon CEO Jeff Bezos said in an interview with Consumer Reports in May. Bezos said his company has long favored an across-the-board “streamlined sales tax initiative,” an idea offered up a decade ago by the National Governors Association, and which 24 states (not, as yet, including California or New York) have signed on to.

The column discusses the Main Street Fairness Act specifically, although we think the description is a bit misleading:

Under Durbin’s bill, “all businesses must collect state sales tax on all purchases, whether or not the business has a physical presence in that state … but based on where the buyer is located,” he said, announcing the proposed legislation earlier this year.

What that brief description doesn’t mention:

  1. The bill doesn’t allow every state to require out-of-state businesses to collect sales tax—just those states that have made it easy for businesses to collect their applicable sales tax by adopting the Streamlined Sales and Use Tax Agreement (SSUTA) guidelines.
  2. The bill lets states decide on their own whether to join SSUTA in order to gain the authority to compel out-of-state retailers to collect their sales tax.

But that aside, the column offers a good overview of the current situation in both California and the nation at large. We can’t include here all the details it includes on the response to California’s new law, so we suggest you go read the entire thing yourself.