Washington Post op-ed: Close the tax loophole for online retailers

July 1, 2011
Washington Post Opinion: Close the tax loophole for online retailers

Washington Post Opinion: Close the tax loophole for online retailers

A new Washington Post opinion piece by Dan Crippen, executive director of the National Governors Association, and former director of the Congressional Budget Office, criticizes Congress for the tax exemptions given to special interests and makes a strong argument for ending the sales tax collection exception for online retailers:

Even now, as states struggle with lagging revenue, increased needs and balanced-budget requirements, there are numerous bills in Congress to exempt special interests from state taxes — for rental cars, cellphones, online travel services and “digital goods.” Such efforts [justify] the exemptions as preventing “discriminatory” taxation. But in reality, they all preempt state taxing authority to give special tax treatment to the politically well-connected.

The most pernicious erosion of state sales tax bases is the proliferation of the sales of goods and services on the Internet — goods and services that if purchased from a local business would have sales tax collected. In other words, Internet sellers receive a tax subsidy for much of what they sell. (emphasis added)

But according to the piece, it’s not just a matter of fairness—of leveling the playing field so that all retailers play by the same rules. It’s also a matter of acknowledging the benefits local retailers bring to communities that can’t be replaced or replicated by online retailers:

This is unfair to local retailers that not only collect sales taxes but also contribute to the local economy, pay state and local taxes, operate as showrooms for Internet sales and technical services, create most of our jobs and contribute to our communities by sponsoring Little League teams and more.

Embedded within that quote is a problem we’ve heard small business owners talk about over and over: Shoppers are visiting local stores, browsing the shelves and asking clerks questions, and then actually making their purchases online. It’s a huge problem for local retailers that are struggling anyway in this economy.

We’re thrilled that this piece counters two of the arguments that are most often levied against online sales tax collection, that it’s a tax increase (false) and that it would be too difficult for businesses (also false):

Of course, it is not a tax increase — it is a means of collecting taxes owed. In most states, the consumer is legally responsible for reporting and paying sales tax on out-of-state purchases. As such, the Internet encourages tax avoidance; the lack of an effective system to collect sales taxes at the time of purchase causes many Americans to incur — but not pay — the taxes they legally owe. This legislation is no more a tax increase than when a company that has not paid into the Social Security system on behalf of its employees is made to do so. . . .

Administrative complexity is the closest that opponents come to a legitimate argument. Indeed, the Supreme Court ruled against states in Quill v. North Dakota [in 1992] precisely on the grounds that it would be too hard to collect all of the different state sales taxes. Since that ruling, at least two facts have changed: (1) the proliferation of computers to calculate taxes due on sales — just as shipping costs are determined based on Zip code — and (2) a state agreement on streamlining and simplifying sales taxes so that there is only one point of collection per state and only a few tax rates per state. Does anyone really believe that a business that operates on the Internet cannot also compute the amount of tax owed?

We would add, of course, that if an online retailer is struggling with sales tax for any reason, services like TaxCloud are available to take that burden off their hands, at no charge.

The piece also points out what exempting online retailers from collecting sales tax ultimately means for taxpayers:

Allowing Internet sellers to escape sales taxes also means that state and local governments will be forced to rely more heavily on personal and corporate income taxes, undermining consumption taxes that economists mostly favor.

It’s a wonderfully thoughtful, cogent article by  someone who knows what they’re talking about, and it’s particularly relevant in light of California’s recent legislation. We highly recommend you head over to the Post and read the entire thing.

THUD! Did Congress hear that?

June 30, 2011

Yesterday California passed legislation requiring any out-of-state retailer with an affiliate in California (or warehouse/drop-shipper, or any other physical or economic presence)  to collect California’s sales tax. It’s the seventh state to enact affiliate nexus legislation, after New York, North Carolina, Rhode Island, Connecticut, Illinois, and Arkansas.

This is a signficant move, but unfortunately it’s the wrong one. As a result of this legislation, affiliates face either losing their income or moving out of the state. In fact, in less than 24 hours, Amazon and Overstock have already ended their affiliate programs in California, just as they did in the other states when they passed similar legislation.

A better option is still available for California by simply joining the Streamlined Sales and Use Tax Agreement and urging Congress to enact federal legislation such as the much anticipated the Main Street Fairness Act (or MSFA). Enactment of the MSFA will enable the states to repeal affiliate nexus laws, and in so doing, restore a significant revenue source for many of their smallest businesses, while also gaining the legitimate authority to collect significantly more revenue.

So, the good news is that as the eighth largest economy in the world, California attracts a lot of attention. There’s a reason for the saying “As goes California, so goes the nation.” Congress cannot possibly ignore the message that California is sending: states want and need federal legislation allowing them to require out-of-state retailers to collect sales tax.

But if anyone in Congress is still wondering if this is matters in their district, here is a small portion of the local news websites  that have published the news that Amazon has dropped its California affiliates (not including California sites):

We are confident that with California’s bold statement, Congress will acknowledge the unmistakable THUD heard ’round the country yesterday. California’s legislation is just the latest plea from states that federal legislation regarding online sales tax collection is absolutely necessary. It’s time for Congress to act.

Florida TaxWatch urges online sales tax collection

June 28, 2011

According to an editorial in the Gainesville Sun (FL), a nonpartisan Florida think tank has recommended that the state improve out-of-state sales tax collection:

Florida TaxWatch, a business-backed, nonpartisan think tank, has recommended that the state improve tax collection on remote sales from out-of-state mail-order, phone-order and Internet businesses.

“It’s not a new tax. It’s a tax that’s been on the books since the 1960s,” TaxWatch CEO Dominic Calabro says.

TaxWatch estimates Florida could collect $35 million to $50 million a year even without approval of pending federal legislation intended to facilitate remote sales tax collections by the states.

“By not collecting it,” he said, “we are putting our own brick-and-mortar retailers and their employees at a 6 percent to 8.5 percent cost disadvantage.”

The article suggests that the Main Street Fairness Act “does not appear imminent,” but we disagree—we believe it will be introduced in the next month or so. But we are glad to see the editorial recommend that Florida join the Streamlined Sales and Use Tax Agreement:

In the meantime, Florida should join with other states in the Streamlined Sales and Use Tax Agreement. That would allow Florida to collect sales taxes from sellers already voluntarily making payments to states participating in the agreement.

Although the editorial doesn’t mention it, by joining SSUTA Florida would also make it easier for retailers to collect multistate sales tax—it’s a move that benefits both states and businesses.

While we’re glad to see states support online sales tax collection and we hope they do join SSUTA, we continue to believe that the best thing state lawmakers can do is contact their delegation in Congress and let them know how urgently federal legislation is needed.

States can only do so much on their own; to truly level the playing field between online and offline retailers and make collecting sales tax easier for multistate retailers everywhere, federal legislation is necessary.

Amazon asks Texas for break on collecting sales tax in exchange for 6,000 jobs, but will collect regardless upon federal legislation

June 27, 2011

According to Internet Retailer and the Austin-American Statesman, Amazon’s Paul Misener, Vice President of Global Public Policy, has sent a letter to Texas legislators asking that Amazon be exempt from a provision in Texas’ budget bill that says any retailer with a distribution or fulfillment center in Texas must collect sales tax from Texas customers. (The Statesman article includes a link to the letter itself, which we have provided here.) In return, the letter suggests, Amazon could create 6,000 jobs in Texas:

I am writing to request your support for a safe harbor provision in the budget bill that would allow Amazon fulfillment and customer service affiliates to bring Texas at least 6,000 new full time jobs with comprehensive health care and other benefits, as well as at least $300 million in capital investment.

This is an increase from Amazon’s previous offer of 5,000 jobs. In the end, the letter says, Amazon could generate over 10,000 new jobs in Texas:

South Carolina recently enacted a nearly identical law that will bring at least 2,000 jobs and $125 million to that state, where officials estimate that the number of indirect jobs created will be at least as great as the number of direct jobs. By the same calculus, Texas stands to gain well over 10,000 new jobs.

You can find more about the Texas debate over Amazon and sales tax here.

Interestingly—and this part isn’t mentioned in either article—Amazon’s exemption would end upon the enactment of federal legislation on sales tax collection:

This safe harbor provision would serve as a time-limited exception to the new tax nexus language already included in the budget bill, and would expire immediately upon the effective date of a federal law on state sales tax collection. (emphasis added)

The South Carolina deal contained a similar provision. The state’s Senate Bill 36, which automatically became law a week ago without the governor’s signature and which amended South Carolina’s tax code to include the terms of the deal with Amazon, says that the deal will not apply upon

the effective date of a law enacted by the United State Congress that allows a state to require that its sales tax be collected and remitted even if the taxpayer does not have substantial nexus with that state.

(If you click the above link to look at the bill, scroll down to section 3 for the language regarding the deal with Amazon; the provision about federal legislation is at section 3, paragraph D, line 3.)

Amazon has long said that it supports federal legislation on online sales tax collection, and we’re thrilled to see that it’s, if you’ll forgive the cliche, “putting its money where its mouth is.”

While states and retailers remain at loggerheads over state sales tax collection laws, it’s remarkable that they agree on thing: the need for federal legislation. Congress, are you listening?

Editorial points out problems with CA bill, recommends federal legislation instead

June 24, 2011

This article from the Press Enterprise (CA) examines California’s affiliate nexus bill ABX1 28 and ultimately recommends federal legislation on online sales tax collection instead.

According to the article, the bill “expands the definition of “physical presence” to include, for example, local businesses that earn commissions by directing their customers to Amazon, Overstock.com and other online stores.” There are good reasons for the bill, the article states:

Online vendors outside California do not collect sales tax on purchases, unlike stores within the state. That gives the Internet retailers a price advantage over California sellers. A study last year by a San Diego State University professor found the imbalance costs California businesses $4.1 billion a year in sales. The state also loses: The Board of Equalization estimates that online commerce cost the state more than $1.1 billion in uncollected sales taxes in 2010.

But ultimately, affiliate nexus plans usually fail:

In states such as Colorado, North Carolina and Rhode Island , online retailers responded by severing all ties with local businesses. New York’s law is in the middle of a court challenge. So California’s online sales tax bill could easily stall in court, or deprive an estimated 25,000 California businesses of income from ties to online companies.

The article ends by explaining why federal legislation is the better solution and calling for Congress to enact such legislation:

The Legislature would be better off pressing Congress for a national solution, as the state’s legislative analyst suggests. The federal government oversees interstate commerce, and has more authority than states to enforce compliance with sales tax laws. Congress would not be enacting a tax hike, but merely ensuring better collection of an existing obligation. That step would also end the unfair competitive edge online retailers now enjoy.

California businesses and state government should not lose out simply because virtual commerce allows sellers to evade the sales taxes everyone else must pay. Individual states cannot end that injustice, however; Congress has to intervene.

We couldn’t agree more.

Baltimore Sun editorial supports online sales tax collection

June 24, 2011

The Baltimore Sun has published an editorial supporting online sales tax collection. It begins:

There’s no denying the convenience and simplicity of shopping online. Successful retailers like Amazon.com and Overstock.com have become giants as a result. Small wonder that online sales have grown to an estimated $200 billion annually, or about 7 percent of all retail transactions that take place in this country.

But should taxpayers be forced to subsidize the industry? That’s essentially what happens now as the bulk of digital sales are not subject to state and local sales taxes. Not only does it give virtual commerce a big advantage over their Main Street competitors but it means that states have to balance their budgets with revenue from other taxes instead. (emphasis added)

The rest of the editorial is equally strong, addressing concerns about online sales tax collection (particularly political concerns) head-on. We were particularly excited to see that it directly refutes those who call sales tax on online purchases a new tax or a tax increase:

But in vetoing the bill [that would have made more Internet companies subject to his state’s sales tax], Governor Perry also acknowledged that something needs to be done to make the system fair. That will require action by Congress where, unfortunately, Republicans appear loath to take any action that might be construed as a tax increase.

Of course, this is nothing of the kind. Rather, it’s an acknowledgement that Internet retailers no longer require the sales tax exemption that might have seemed appropriate for the fledgling industry 19 years ago. Allowing that advantage to continue is a jobs killer—mom and pop stores that pay taxes and employ local residents are getting the short end of the stick.

It’s an excellent argument, and we highly recommend that you read the entire editorial.

We do want to correct one item in the article, however:

One promising alternative is an ongoing effort to create a streamlined sales and use tax—a standardized sales tax nationwide. So far, 24 states have signed onto the agreement.

This statement could be easily misinterpreted to suggest a single nationwide sales tax rate. While it’s clear that they’re talking about the Streamlined Sales and Use Tax Agreement (SSUTA), readers should be alerted that SSUTA does not create or recommend a single nationwide sales tax rate.

States that are members of SSUTA agree to standardize sales tax categories and definitions, so that what falls into the category “candy” in one state doesn’t fall into the category “food” in another. They also agree to use standard tax return forms, so that retailers don’t need to fill out a different form for every state, and they agree to standardize other sales tax data, such as tax base definitions. All of this is designed to make it easy for retailers to collect sales tax for multiple states.

But SSUTA does not create a single sales tax rate for its member states, as the editorial seems to suggest. Every SSUTA state still retains the autonomy to set their own sales tax rate.

With that one correction, we can wholeheartedly recommend the editorial—which, incidentally, is just the latest in a long line of articles supporting online sales tax collection.

Florida small business owners on online sales tax collection

June 24, 2011
Gulf Coast Business Review

Gulf Coast Business Review: The $1.5 Billion Loophole

A new article in Gulf Coast Business Review (FL) highlights small local retailers whose business is suffering because most of their online competitors don’t have to collect sales tax:

“The challenge we have is that people will come into our store and ask to be fitted for the right bat, and then go on the Internet and buy that product,” says [Sandy Fortin, owner of 28 franchises of sporting goods store Play It Again Sports in Florida], who’s also treasurer of the Florida Retail Federation. “We end up spending payroll and time with customers, and then they go spend it on the Internet.”

Purchases of goods via the Internet continue to grow, and it’s costly to Florida’s brick-and-mortar businesses, like Fortin’s. According to the U.S. Census Bureau, from 2007-2009 Internet sales grew 4.8%, while brick-and-mortar store sales sank 9.1%.

And because out-of-state business aren’t required to remit the state’s 6% sales tax or additional local option sales taxes that push the rate to as high as 7.5% in some counties, local businesses argue it puts them a disadvantage. . . .

 “It definitely affects your sales,” [Fortin] notes. “We’re the ones creating the jobs. If we do more business in sports, we’re going to open more stores and hire more people.”

The article points out that the current sales tax system simply doesn’t reflect the realities of today’s marketplace:

“The problem is we have a retail marketplace that is changing,” explains Rick McAllister, president and CEO of the Florida Retail Federation. The organization is a big supporter of leveling the playing field along with other major business groups including the Florida Chamber of Commerce and Associated Industries of Florida. “It’s no longer brick and mortar,” observes McAllister, “the Internet is growing, growing, growing. We have a tax system that is not changing with a market system that is changing.”

The article also covers recently proposed Florida bills, Senate Bill 1548 by Senator Evelyn J. Lynn (R) and House Bill 455 by Representative Michelle Rehwinkel Vasilinda (D), that would have allowed Florida to join the Streamlined Sales and Use Tax Agreement (SSUTA). Interestingly enough, not long ago (April 26, 2011), the legislators organized a Main Street Fairness Day in Tallahassee, where we spoke alongside other Florida businesses in support of these proposed bills. Unfortunately, both of these bills died in committee when the legislative session ended on May 7. Hopefully Florida can finally get these important bills passed in their next session.

Once the federal Main Street Fairness Act is passed, states will be able to compel out-of-state retailers to collect their sales tax, but only if they make doing so easy for retailers by adopting and enacting SSUTA guidelines—otherwise, the burden of collecting sales tax is simply too great, and states will end up losing millions (or even billions) in uncollected sales tax.

It’s a well-written and balanced article, and we recommend you read the entire thing, particularly if you live or work in Florida.

Maryland’s governor and comptroller speak out on online sales tax collection

June 22, 2011

Boston.com: MD governor and comptroller support online sales tax

According to an article on Boston.com, the Maryland Bureau of Revenue Estimates is preparing a study on uncollected online sales tax that is due at the end of the summer. But the most interesting part of the article are the quotes it contains from the state comptroller and governor:

“The key point for Maryland is that the Internet industry is no longer in need of subsidies and tax protections and special treatment,’’ [Maryland State Comptroller Peter] Franchot said. “They’ve grown into behemoth companies that they currently are, and they have a responsibility to the states, I believe, that they do commerce in. Right now, they’re avoiding it on a technicality, which is `we don’t have a bricks and mortar company in Maryland.’’’

Maryland Governor Martin O’Malley wrote a letter to Comptroller Franchot asking him to investigate the issue of online sales tax:

O’Malley, a Democrat, noted in his letter that the state’s Department of Legislative Services adapted a study by the University of Texas to estimate that Maryland loses more than $160 million each year from unpaid taxes related to Internet sales.

“I am concerned that the failure of any subset of retailers to collect and remit sales tax has a negative impact on Maryland’s overall fiscal strength, including our ability to meet our priority investments such as public school construction or maintaining our Transportation Trust Fund,’’ O’Malley wrote.

We’re happy to see state officials speaking out on the issue, and we hope that they’ll let Congress know how they feel. Only Congress can let states require out-of-state retailers to collect sales tax, and each state’s representatives need to know how important the issue is to the state’s governor and other officials.

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.

Online sales tax collection would pay for more than 460,000 teachers

June 20, 2011

UPDATED 6/22/2011 : Associated Press just issued a correction for this article: AUSTIN, Texas (AP) — In a story June 19 about collecting sales tax on Internet sales, The Associated Press incorrectly reported that the $23 billion in uncollected sales and use tax could employ 46,000 teachers. That number should have been 460,000 teachers.

Original Post 6/20/2011: A terrific new AP article puts a human face on just what the failure to collect sales tax online means by looking at its impact on state budgets:

State governments across the country are laying off teachers, closing public libraries and parks, and reducing health care services, but there is one place they could get $23 billion if they could only agree how to do it: Internet retailers such as Amazon.com.

That’s enough to pay for the salaries of more than 46,000 teachers, according to the U.S. Bureau of Labor Statistics. In California, the amount of uncollected taxes from Amazon sales alone is roughly the same amount cut from child welfare services in the current state budget.

It looks at the case of Texas in particular, which has been in the news recently—and this blog—for the public debate between the governor and legislature over online sales tax:

Texas cut $24 billion in state services to cover its revenue shortfall. That included decisions not to fund the expected growth in the number of public school students and the expected growth in the caseload for Medicaid, the health care program for the poor and disabled.

The article emphasizes that in Texas, as elsewhere, small businesses are suffering because they cannot offer the sales tax discount that online retailers can:

When Texas lawmakers took up such a bill [to force big online retailers to collect sales tax], most of the testimony came from owners of small businesses. Gregg Burger, the general manager of Austin’s Precision Camera, complained that customers come into his store to inspect the products, but then go online to buy them to avoid the sales tax.

“We get people all the time who come in, talk to a salesman for 15 minutes to half an hour … and then go, and we know they are going to buy it online because they can save money. In theory, they are stealing our time,” Burger said. “We’re losing at least 15 percent to online, out-of-state, so we’re losing anywhere between $3 million and $5 million a year in business.”

The article offers a clear and thorough background on online sales tax, too—but we recommend it particularly for its explanation of what collecting online sales tax could mean for state budgets, and therefore for ordinary citizens.

WV delegate John Doyle says online sales tax could mean tax cuts elsewhere

June 8, 2011

In an Associated Press article about West Virginia’s budget, state delegate John Doyle noted that if online retailers collected existing sales tax, instead of shifting that burden to their customers, the revenue generated could allow for tax cuts elsewhere:

Doyle, a past president of the agreement’s governing board, said increased revenue is one of several reasons to pursue Internet sales tax revenues — but not the most important.

 “Even if we didn’t need the revenue, we should still do this and then reduce the tax burden elsewhere,” Doyle said Friday.

He gave the example of the state tax on groceries, which generates about as much revenue as online sales tax would if retailers collected it:

States can expect to lose $11.4 billion in 2012 from Internet sales that will go untaxed, state Deputy Revenue Secretary Mark Muchow said Friday, citing a recent Tennessee study. West Virginia will miss $50.6 million in such potential revenues, the study estimated. . . .

Muchow estimated that the 2 percent tax [on groceries] will yield between $52 million and $55 million annually.

“It’s almost a fair trade,” Doyle said.

It’s an argument for online sales tax that hasn’t gotten much attention, but we have heard that legislators in other states are considering cutting taxes elsewhere if they are able to require online retailers to collect sales tax. The West Virginia tax on groceries is a good example: Most states do not tax groceries at all, but even though many West Virginia lawmakers advocate eliminating the tax entirely, the $52-56 million it brings in is necessary for vital state services. If an existing tax that mostly goes uncollected were to be collected and provide enough revenue, the groceries tax could be eliminated.

The entire article is well worth reading for both background on the issue and Doyle’s take on it.

Update: There seems to be some confusion over a quote from Doyle at the end:

“I believe that the Internet should be a tax-free zone,” Doyle said. “We’re better off not taxing it, but it’s still wrong for the federal government to tell us that particularly because they’re allowing states like Texas and New Hampshire to tax it.”

This seems to be a contradiction at first—up to this point in the article, Doyle has supported online sales tax. However, the paragraph preceding the quote supplies the necessary context to understand Doyle’s true meaning:

He added that while states should also be allowed to decide whether to tax Internet access, he favors an across-the-board federal ban. The problem there is an existing federal moratorium allows a handful of states to maintain their access taxes, he said.

In other words, Doyle believes that internet access should not be taxed—and that existing sales taxes on online sales should be collected by retailers. Far from being contradictory, these positions seem quite sensible to us.

Bezos to shareholders: Simplified sales tax will happen

June 8, 2011
Seattle Times

Seattle Times: Amazon tells shareholders it will stand firm on sales taxes

According to an article in the Seattle Times, at a shareholder meeting on Tuesday Amazon CEO Jeff Bezos expressed support for the Main Street Fairness Act (without mentioning it by name):

Bezos reiterated his support of federal efforts to minimize the many differences among states on sales-tax collection from Internet retailers. Asked by one shareholder to look ahead 10 years, Bezos said, “I believe we’ll have the simplified sales-tax initiative passed.”

“I hope it might happen much sooner than that,” he added. “It’s the right thing to do, and I think it would be great for Amazon.”

However, he reiterated that Amazon is opposed to state-by-state legislation attempting to require online retailers to collect sales tax.

One clarification: It may be difficult to understand from the article that sales tax is already due on online sales. Currently the consumer is required to send the tax due directly to the state if the retailer doesn’t collect it.

The Main Street Fairness Act would allow states that have adopted sales tax simplification measures (thus making it easy for retailers to collect sales tax for multiple states) to require online retailers to collect sales tax.


BNET column looks at economics and politics of online sales tax

June 8, 2011

Earlier today, a column on BNET (CBS’s business website) offered an insightful look at the economic and politic realities of online sales tax. The author believes those realities are favorable for the Main Street Fairness Act:

But with states and municipalities across the country facing enormous fiscal challenges, a measure that raises revenue while also leveling the competitive playing field may now find stronger support in Congress.

With this caveat:

That said, the politics surrounding Durbin’s bills are complex. It pits politically wired online giants against even bigger, more powerful offline retailers. The measure is also likely to face opposition from anti-tax lawmakers who falsely label it as an additional burden on business.

The author cites the figures in a University of Tennessee study to illustrate just how much exempting online retailers from collecting sales tax is costing states:

A landmark 2009 study by University of Tennessee researchers projected that over a six-year period through 2012, failing to collect taxes from e-commerce companies would cost state and local governments a total of more than $52 billion.

However, there are problems with the efforts made by individual states to get online retailers to collect sales tax. In particular, the author offers this argument against affiliate nexus legislation of the sort just passed by California’s Assembly:

They result in a patchwork of state tax laws, arguably raising compliance costs. Worse, it allows online retailers to play states off each other by threatening to leave the ones that are weighing such laws.

The better solution? Federal legislation such as the Main Street Fairness Act:

Federal legislation . . . is the only way to ensure a uniform Internet sales tax. There’s no reason that online retailers that benefit from soliciting customers in a state shouldn’t pay local sales tax. That hurts competition, and it deprives states of essential revenue that they are already legally entitled to collect from traditional merchants.

We must point out the slight misstatement here—the author likely intended the word collect rather than pay. This little slip-up suggests that online retailers would pay local sales tax, when actually the online retailer would simply collect the sales tax from their customer, based upon their customer’s local jurisdiction.

It’s an interesting column from a business perspective, and we suggest you head over to BNET to read the entire thing.

Politico weighs in on Main Street Fairness Act

June 8, 2011

Yesterday Politico ran an article that predicts that the Main Street Fairness Act may soon be introduced, and included along with a good background on the issue is an analysis of its chances of success:

Similar legislation introduced last year by former Rep. Bill Delahunt (D-Mass.) went nowhere. However, the dynamics in Congress may have changed now that a growing number of states have passed or are considering bills to address the issue and online businesses are faced with the possibility of complying with many different state laws and many different state sales tax rates.

Complying with federal legislation would be simpler for online retailers than complying with dozens of individual state laws. What’s more, the Main Street Fairness Act allows only states that have already enacted regulations that make compliance easier for online retailers to require online retailers to collect sales tax:

The idea behind Durbin’s bill is that states would be able to require online retailers to collect sales tax if the states first agree to a streamlined sales tax. So far, 24 states are members of the Streamlined Sales and Use Tax Agreement, which would simplify and harmonize sales tax nationwide.

The article says that the bill may be introduced as early as this week. Naturally, we will keep you posted on any developments.

National Law Review article offers thoughtful argument for Main Street Fairness

June 6, 2011
National Law Review

National Law Review: Selling the Main Street Fairness Act

A new article in the National Law Review provides a thoughtful analysis of the issues surrounding online sales tax and the Main Street Fairness Act. We’d recommend it for the thorough background on sales tax and out-of-state sellers alone, which is the best we’ve read, but it also offers a cogent, well-thought-out argument for the Main Street Fairness Act.

We’ve provided some of our favorite quotes here, but we highly recommend reading the entire article. It’s well-worth your time.

On why the current system of requiring individuals to pay the tax due on their online purchases directly to the state is actually dangerous for online retailers:

 It is much simpler and more intuitive for consumers to pay the tax up front as one swift transaction than to log their purchases, store the information, and file a use tax return with their payment at some later date. The increased hassles of recording each purchase could drive people back into brick-and-mortar stores, nullifying the efforts of Amazon and other remote sellers. For this reason, remote sellers should embrace the Main Street Fairness Act as a means to create certainty and consistency in the marketplace.

On supporting federal legislation rather than leaving it to the states:

The Main Street Fairness Act would grant federal authority to states, thus allowing states to enforce sales and use tax laws that are currently in place but are often not obeyed. . . . While states have had some success tackling the noncompliance issue on their own through enacting Amazon laws or similar statutes, the federal government is the sole body that is constitutionally charged with regulating interstate commerce and therefore should provide states with a tool to help them enforce their laws and uniformly tax interstate commerce. If passed, the Main Street Fairness Act could effectively serve as that tool.

On recent changes in consumer shopping habits that are hurting local retailers:

Recent studies indicate that many consumers are beginning to follow a “just looking” trend whereby they test products in local stores by seeing, touching, and feeling them, then rush home to order the same products online where they can avoid paying sales taxes.  According to one consumer behavior report, seventy-five percent of online consumers sought to purchase from merchants that did not charge sales tax and offered free shipping. The savings are even greater when buying in bulk, thus enticing large organizations to shift their purchasing patterns away from small local retailers to reduce costs in a bad economy.

And finally, on why the Main Street Fairness Act is the best solution:

This system is ideal because states can preserve their independence by joining or leaving the Agreement at any time, while providing substantial benefits to out-of-state retailers by simplifying and unifying their reporting requirements. The Main Street Fairness Act is the bandwagon heading toward uniformity and fairness in sales tax collection. States just need to jump on.