“Fair Is Fair”: A legal perspective on the Marketplace Acts

September 11, 2012

The latest issue of Shopping Center Legal Update, a “legal journal for the shopping center industry,” has an interesting article on the Marketplace Fairness Act, Marketplace Equity Act, and Main Street Fairness Act—the three bills currently before Congress that would each allow states to require online retailers to collect sales tax.

In the article, Brian D. Huben, a partner at the LA law firm Katten Muchin Rosenman LLP, provides a legal perspective on online sales tax collection. We were particularly interested in his analysis of the Supreme Court case Quill Corp. v. North Dakota (1992). That case is responsible for the current rules about sales tax that govern online shopping, and this is the first place we’ve seen its details explained by a legal expert.

We found this part of the article, which quotes the dissenting opinion in Quill, particularly enlightening:

Some say that the past is prologue. Justice Byron Raymond “Whizzer” White, who dissented in Quill, presciently noted that “an out-of-state seller in a neighboring State could be the dominant business in the putative taxing State, creating the greatest infrastructure burdens and undercutting the State’s home companies by its comparative price advantage in selling products free of use taxes, and yet not have to collect such taxes if it lacks a physical presence in the taxing State.” Quill Corp., 504 U.S. at 328 – 329. While the stakes in Quill were decidedly smaller, the $23 billion in uncollected sales and use tax revenue cannot be ignored.

While fairly brief, this article is a great source for those interested in today’s online sales tax rules, how they came to be, and why some are arguing for change.


TheStreet.com speaks out against online “sales-tax evasion”

December 8, 2011
TheStreet

TheStreet says when online retailers don't collect sales tax, it's tax evasion

An article on TheStreet calls the lack of online sales tax collection “sales-tax evasion” and says that it’s likely to come to an end soon.

The article uses strong language to compare online retailers that don’t collect sales tax to the “gray-goods stores” of the past:

There used to be a time when sales-tax evasion was a grimy business. It required a sleazy merchant and a greedy customer, conspiring to make the transaction in cash, “tax included” (wink-wink). Once there was a string of electronics stores on Manhattan’s Lower East Side that survived by non-taxed transactions in “gray goods,” in which the state tax authorities (and sometimes customers) were systematically cheated.

Today, of course, nothing has changed.

The merchants are still sleazy, the customers are still greedy — only now, sales-tax evasion is both commonplace and organized. The name for this particular variety of organized crime is known as “Internet retailing.”

As you might expect from that opening, the article doesn’t pull its punches. It makes for a read that’s compelling as well as informative. Witness this paragraph on online retailers’ losing battle against sales tax collection:

If the Internet retailers get socked with a sales tax, they have pretty much themselves to blame. They’ve been outmaneuvered by the brick-and-mortar stores, who have successfully presented this as a David vs. Goliath battle. But in a sense there’s also the historical fact that no business model predicated on cheating the government ever works. Amazon, by supporting the legislation, is simply going along with the march of history.

According to the article, legislation allowing states to require online retailers to collect sales tax is almost certain to pass. And we were thrilled to see this comment on the argument that collecting sales tax online is too complicated or burdensome:

Amazon’s acquiescence, meanwhile, made mush of [Overstock.com CEO Patrick] Byrne’s dubious claim that modern software wasn’t up to the task of doing something as complex as computing the correct sales tax for each customer.

As our regular readers know, we created TaxCloud expressly to make collecting sales tax easy and inexpensive for online retailers. It’s hard to see how anyone could argue that it’s too difficult to collect sales tax when a free service like TaxCloud is available to not only calculate the tax due in real time, but also to file sales tax returns, process exemptions, and handle any audits.

We recommend reading the entire article for an interesting take on the online sales tax collection situation.

The article ends by taking a moral stance on online sales tax with this closing paragraph:

I know, paying taxes is annoying. But even the Internet retailers, their laissez-faire anti-tax arguments notwithstanding, rely upon government services like the Postal Service to get goods to their customers. And if they use private services like FedEx, those package-delivery trucks travel on roads maintained by local taxes. For years, the net has taken advantage of those goodies without collecting a dime, and profiting from the resulting “discount.” It’s high time that free ride came to an end.


Debunking another online sales tax myth

October 28, 2011

We’ve started seeing a new line of argument against online sales tax collection in many articles and editorials. It goes something like this:

“An online store shouldn’t have to collect sales tax for a state it doesn’t have a physical presence in because it doesn’t benefit from any of the things sales tax pays for, like firefighters and police. If a store is located in California, why should it collect New York sales tax when that sales tax goes to pay for projects and services in New York?”

This argument would make sense if the online store were paying, not collecting, sales tax. But that’s not the case. It’s the store’s customers who are paying sales tax, and they do benefit from the firefighters, police, libraries, and more that sales tax revenue helps pay for.

Online stores pay taxes wherever they’re located to help pay for the services that their offices benefit from. All that has absolutely nothing to do with whether or not they collect sales tax. Collecting sales tax is—or rather should be—simply part of selling online, just as it’s part of selling on Main Street.

To sum up: The sales tax you pay funds projects and services in your community. That’s as it should be. Collecting sales tax? That’s just part of doing business.


Study says online sales tax collection = more jobs for Speaker Boehner’s Ohio

October 20, 2011

An article in Internet Retailer says that a new University of Cincinnati study found that “retail stores in Ohio would hire 11,000 new employees if a new system requiring sales tax collection by out-of-state online and catalog retailers went into effect.”

We’re not surprised—local stores provide three jobs for every one provided by an online retailer—but we’re glad to see solid figures on just how many jobs would be created if online retailers collected sales tax.

The article includes this quote from Jeff Rexhausen, associate director of research at the University of Cincinnati Economics Center:

“These are very, very significant findings . . . . Given the difficult economic circumstances affecting Ohio’s retail businesses and its state and local governments, finding a way to bring fairness to the online sales tax process would be a huge economic boon to the state.” (emphasis added)

We hope Speaker Boehner (R-OH) and the rest of Ohio’s delegation in Congress are listening. When Congress can create tens of thousands of new jobs and help ensure states have enough revenue for schools, firefighters, and police, all without creating a new tax or raising taxes—why wouldn’t they?


Update on Florida’s push for online sales tax collection

October 17, 2011
Florida

Florida: Striding ahead on online sales tax collection

Florida State Senator Evelyn Lynn (R-7th) and State Representative Michelle Rehwinkel Vasilinda (D-9th) are continuing the fight for online sales tax collection in Florida.

According to this article on WCTV.tv, Vasilinda “has re-filed HB 321—the Streamlined Sales and Use Tax Agreement (SSUTA)—in the Florida Legislature for the upcoming 2012 session” and Senator Lynn re-filed the companion SB 430:

The Representative believes that the passage of her bill would help to resolve projected shortfalls in our state’s budget.

Representative Rehwinkel Vasilinda has also filed House Memorial 323, a resolution that requests the U.S. Congress adopt the Main Street Fairness Act on the national level. Collecting sales tax from Internet purchases has bipartisan support, and Florida State Senator Evelyn Lynn (R-Ormond Beach) has filed a companion bill as well as a Senate Memorial Resolution to Congress on the SSUTA.

In a previous blog post, we pointed to a great Tallahassee Democrat editorial praising Vasilinda. Unfortunately the editorial is now behind a firewall on the newspaper website (a search in the archives for “Pinching the loophole,” the original title of the article, will bring it up if you’re interested enough to pay to read the entire editorial)—but we did quote from it extensively in our post, and you can also read a portion of it on the Stand With Main Street Florida website.

But that’s just one of the posts we’ve written about the huge support for online sales tax collection in Florida. That support comes from business groups, the business-backed think tank Florida TaxWatch, small business owners, and of course, other newspaper editorials.

As our regular readers may recall, we even traveled to Florida in April of this year to attend their Main Street Fairness Day in Tallahassee, where we spoke alongside other Florida businesses in support of the corresponding bills from the Florida legislature’s previous session.

We’re behind Sen. Lynn and Rep. Rehwinkel Vasilinda 100% in their efforts on behalf of Florida. It seems pretty clear that most of Florida’s residents and businesses are behind them, too.


Press round-up on Marketplace Equity Act

October 15, 2011
Press round-up

Press round-up: News on the Marketplace Equity Act

Here’s a round-up of the press coverage on the Marketplace Equity Act, introduced yesterday:

– from Politico, “Online sales tax bill splits community”

– from the National Journal, “House online sales tax bill draws bipartisan support”

– from Internet Retailer, “A new take on web sales tax collection”

– from the Tax Foundation’s Tax Policy blog, “New state online sales tax bill introduced in Congress”

– from Bookselling This Week, “New federal sales tax fairness legislation introduced”


Reuters: State and local leaders on both sides of the aisle ask Congress to close online sales tax loophole

October 4, 2011
Reuters: Strapped states crave bigger online tax bite

Reuters: Strapped states crave bigger online tax bite

We were fascinated by a new Reuters article that focuses on states’ loss of revenue due to uncollected online sales tax.

Among the facts that caught our eye was this tidbit:

On the state level . . . financial pressures seem to have erased partisan division on the issue. Texas’ majority Republican legislature passed its legislation, and California’s measure had support from both parties.

Hoping to bring that cooperation and a sense of urgency on the issue to Washington, local businesspeople, mayors and other officials from states have been lobbying on Capitol Hill. (emphasis added)

We’ve always believed that online sales tax collection is a bipartisan issue—it’s not about creating a new tax or raising taxes; it’s simply about closing a loophole that’s draining states’ abilities to fund critical local services. We’re glad to see that state politicians are willing to forget about partisanship in order to serve the greater good, and we think that even on the federal level, there’s more agreement than not on the issue. Over time, we believe that more and more political leaders on both sides of the aisle will speak out for the Main Street Fairness Act—particularly since the article quotes a spokesman for the Alliance for Main Street Fairness as saying that “between 150 and 200 members of Congress come from states which have recently taken action and would see hometown support for a federal solution.”

The article also includes a quote from Oklahoma City Mayor Mick Cornett, who’s “lobbied extensively for federal action” (and who is, we note, a Republican), that offers some specific figures on what the lost sales tax revenue would have paid for:

Cornett says the $10 to $15 million a year his city loses on uncollected taxes equates to between 100 and 150 firefighters or police. He says he’s making progress arguing that these are taxes already owed, not new taxes.

“Now you find conservatives in Washington who understand this is closing a loophole, it’s not a new tax,” says Cornett.

Most cities are just hanging on, trying to keep the firefighters and police on the street. This is one way Congress can help local governments without it costing them anything.” (emphasis added)

Granted, that figure applies only to Oklahoma City, but it does give us some idea of just what we lose when online retailers don’t collect sales tax. Consider, too, that the 100 to 150 firefighters or police officers that sales tax would have paid for isn’t only a loss to the community, as important as that is. It’s also a loss of new jobs at a time when they are desperately needed. If Oklahoma City had had the $10 to $15 million a year that it’s due in uncollected sales tax, it could have created 100 to 150 new jobs.

The article concludes with a discussion of how sales tax contributes to state budgets:

Nationally, the cost of running local government is rising faster than tax revenue. Sinking property values are hurting real estate tax collections. Stagnant salaries have kept income tax flat in the states which impose one.

Oklahoma’s cities rely on sales taxes for 55 percent of their budget on average. In some places, sales tax covers more than 90 percent of the local budget.

Arkansas municipalities rely on it heavily too, for close to 50 percent of their income from sales taxes. Slack receipts have driven 15 Arkansas cities to institute sales tax increases so far this year, according to the Arkansas Municipal League.

Texas Comptroller Susan Combs calculates that in fiscal 2010, which ended August 31, her state lost $658 million in uncollected sales taxes. Sales tax contributes 55 percent of the state’s total income. (emphasis added)

These figures are revealing, particularly when you consider the fact that sales tax revenue has been declining for the past decade, due mainly to the increase in online shopping. Add up these three facts—sales tax provides at least 50% (in some places, up to 90%) of city or municipal income in Oklahoma, Arkansas, and Texas; sales tax revenue has been declining for a decade; and in this economy, other sources of revenue, such as income tax and property tax, are also declining—and it becomes clear why 15 Arkansas cities had to raise sales taxes this year. If online retailers were collecting the sales tax that’s already due, those increases would not have occurred.

Near the beginning of the article, Mick Cornett, mayor of Oklahoma City, directs a plea toward Congress: “We need help at the federal level. . . . There’s a limit to what we can do [locally].” If Congress is paying attention to what its counterparts at the state and city level are saying, not to mention to the needs of Americans for new jobs, firefighters, and police, the Main Street Fairness Act should pass soon, by a wide margin.