Our hearts are racing (for internet sales tax collection)!

July 26, 2012

As most of our readers are no doubt aware, changes have been happening fast for online sales tax collection. Here are the basics you need to know:

  • A few days ago, the House Judiciary Committee held a hearing on the Marketplace Equity Act (H.R. 3179). Several members of Congress, both Democrat and Republican, testified at the hearing in support of the bill, and an article in the Wall Street Journal proclaimed that “the hearing revealed that a large number of lawmakers had moved beyond the question of the legitimacy of collecting online sales taxes and were focused on how to avoid making the process overly burdensome.” (We have the answer, of course: services such as TaxCloud, which take the cost and complexity out of collecting sales tax online.)
  • Meanwhile, the Senate bill on the same issue, the Marketplace Fairness Act (S.1832), will be the subject of a hearing before the Senate Committee on Commerce, Science, and Transportation next week on August 1.
  • Also, New Jersey Governor Chris Christie has joined the list of Republican lawmakers who support federal online sales tax legislation. He also made a deal with Amazon for the company to begin collecting sales tax on purchases made by New Jersey residents in July 2013, in exchange for which the company will build two new distribution centers in the state. Since Christie is one of the leaders of the Republican party—he is frequently mentioned as a potential vice-presidential candidate—we hope this will put an end to the divisive rhetoric that only Democrats support online sales tax collection.
  • Another sign of the momentum that federal legislation is gathering, news articles on online sales tax collection are proliferating everywhere. A few we recommend:

Retailers, lawmakers revive call for Internet sales tax, MSNBC/CNBC, July 26

Online sales tax effort gains traction at US House hearing, Wall Street Journal, July 24

Proposed online sales tax gaining momentum and foes, FOXBusiness, July 24

Supporters of online sales tax say it’s good for consumers, PC World, July 24

Online sales tax is coming!Wall Street Journal, July 21

Pass the online sales tax! The Washington Post Editorial Board, July 16

Tax break nears end for online shoppersWall Street Journal, July 16 NOTE: FRONT PAGE

States, Congress rallying for an e-sales taxWashington Post, July 8 NOTE: FRONT PAGE

Our opinion: If the bipartisan momentum and support for online sales tax collection continues at the current pace, this issue could provoke a seemingly extraordinary achievement: that Congress can get something done, even in an election year!

This legislation is good for consumers, state and local governments, and businesses. Opponents (primarily eBay) claim the legislation will hurt businesses, but their argument ignores the actual substance of the proposed legislation. The Marketplace Fairness Act S.1832 (and the Marketplace Equity Act H.R.3179) require that states simplify and standardize their sales tax systems and they must provide the software (or services) for retailers to easily comply. We strongly support action by Congress on this issue.

Florida business groups inspired by California-Amazon deal

September 19, 2011

According to a Sarasota Herald-Tribune (FL) article, Florida business groups are hopeful that the deal between California legislators and Amazon—which repeals California’s online sales tax collection law in exchange for the reinstatement of Amazon’s 10,000 California affiliates and requires both groups to work together for the passage of the federal Main Street Fairness Act; if the federal bill doesn’t pass by the end of July 2012, the California law will be reinstated—will “help convince [Florida] lawmakers to take similar steps”:

Mark Wilson, president of the Florida Chamber of Commerce and a member of the Florida Alliance for Main Street Fairness, saw the California deal as a positive sign for Florida retailers.

“If Amazon can collect and remit sales taxes in California, it can do it [in] Florida,” Wilson said. “Recently, both Texas and California passed E-fairness legislation to level the playing field for small businesses. Now, Amazon’s agreement to collect sales tax in California — just like Main Street retailers — proves that they don’t need a special tax deal at the expense of Florida-based small businesses either.”

Wilson said Florida lawmakers now have “a unique opportunity to put small business job-creation ahead of Amazon’s tax subsidies.”

While Wilson has a point—I don’t think anyone would argue that it’s too difficult for Amazon to collect Florida sales tax (especially with services like TaxCloud available)—Amazon has good reasons to support federal online sales tax collection legislation (the Main Street Fairness Act) and oppose state-by-state laws. While the Main Street Fairness Act would actually make it easier for businesses to collect sales tax, state-by-state laws have become so numerous and varied that they make it extremely difficult for businesses to collect sales tax in more than one state.

One way that the Main Street Fairness Act makes it easier for businesses to collect sales tax is by authorizing online sales tax collection only in those states that have simplified their sales tax laws by joining the Streamlined Sales and Use Tax Agreement (SSUTA).

Although Florida’s recent bill to join SSUTA stalled, we would urge Florida lawmakers to pass that bill, and soon. Not only will it make it easier for businesses to collect Florida sales tax, but it will also put Florida in the perfect position to require all online retailers to collect sales tax when the Main Street Fairness Act—which now has the full support of California and Amazon behind it—becomes law.

Joining SSUTA will also make it clear to Congress that Florida, like California and Amazon, supports the Main Street Fairness Act.

Many states have been tempted to skip the step of joining SSUTA and go straight to requiring some online retailers (mostly large ones, like Amazon) to collect sales tax. California started out taking that approach. But as California and other states have discovered, that approach ends up hurting businesses, which have to deal with all the complexities of state-by-state sales tax laws, and in-state affiliate marketers, which are usually dropped by retailers so that the retailer can try to avoid collecting state sales tax. The end result is fewer jobs in the state and no increase in collected sales tax.

Joining SSUTA is the better approach. It simplifies sales tax collection for businesses while leveling the playing field between online and Main Street retailers. We hope this is the approach Florida decides to take.

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.

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.

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: 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.

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.

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.

Texas’ very public debate over online sales tax

June 10, 2011

Statesman.com: Texas House breaks with Perry

According to this article from the Austin American-Statesman (TX) and this press release from Texas Governor Rick Perry, it seems the Texas House of Representatives is at odds with the governor over provisions that would clarify what constitutes a retailer’s “physical presence” in the state. Retailers with a physical presence in the state are required by law to collect Texas sales tax.

The debate began last September, when Texas comptroller Susan Combs “sent Amazon a notice that it owed $269 million in sales taxes it failed to collect from 2005 to 2009. She noted that Amazon had a distribution center in Irving.” In response, Amazon threatened to close the distribution center, which would eliminate 119 jobs, and dropped plans for expansion that would have created 1,000 jobs.

The proposed provisions, which have now been added to Senate Bill 1, the omnibus fiscal matters bill, makes it clear that a distribution center does qualify as a physical presence. The Texas House and Senate already passed a bill (HB 2403) containing this language, but it was vetoed by Gov. Perry less than two weeks ago. The House passed the bill on fiscal matters with the provision intact on Thursday.

Interestingly, both the governor and supporters of the provision claim to be acting to support jobs. Said Ronnie Volkening, president and CEO of the Texas Retailers Association:

“We’re disappointed that the governor does not seem to appreciate the negative impact on job creation that continuing a sales tax structure that is discriminatory against Texas retailers can have.”

In turn, the governor issued a statement saying, in part:

I believe this provision risks significant unintended consequences, including a loss of Texas job opportunities and weakening of our state’s competitive advantage.

Actually, we believe that both of them have a point. And even better, we have a solution.

Mr. Volkening is right that allowing online retailers to avoid collecting sales tax hurts local retailers. And since local retailers supply local jobs, hurting local retailers ultimately means fewer jobs. But Gov. Perry is also right to be concerned that Amazon’s closing the distribution center will cause a loss of jobs.

But the problem isn’t with online sales tax. The problem is that there is no federal legislation regarding online sales tax, which Amazon CEO Jeff Bezos has publicly supported many times. Without federal legislation, individual states are creating a multitude of laws that end up targeting particular retailers and make it more difficult for all retailers (online and offline) to collect sales tax for multiple states.

What we need is the Main Street Fairness Act, which would allow states that have made it easier for retailers to collect sales tax (by joining the Streamlined Sales and Use Tax Agreement) to require online retailers to collect sales tax.

When such federal legislation is passed, it will make sales tax collection rules consistent in every state, and states won’t need to worry about warehouses closing and eliminating jobs, and local retailers won’t need to worry that online retailers have an automatic price advantage because they don’t have to collect sales tax.

Don’t get us wrong—there will still be competition. States will still need to offer a business-friendly climate to attract companies, and retailers will still need to offer competitive prices. But that competition will finally be on a level playing field.

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.