Update: States eager for online sales tax action

February 7, 2013

In early December, we posted about states taking action on online sales tax collection.

As we noted then, states can’t do much without federal legislation, and support is growing in Congress for a bill that would give states full authority to require online retailers to collect sales tax.

But in the meantime, more states have started looking at what they can do.

Hawaii, Florida, and Michigan are all considering bills that would require an out-of-state retailer to collect sales tax if the retailer has an affiliate in the state.

Hawaii is also looking at adopting the Streamlined Sales and Use Tax Agreement, a set of guidelines that make collecting sales tax easy for retailers.

And while Virginia isn’t considering state action, it is counting on congressional action. The state’s proposed plan for transportation funding assumes that Congress will pass online sales tax legislation, allowing Virginia to collect hundreds of millions of dollars in uncollected sales tax.

States have already said that online purchases are subject to sales tax—but most of that sales tax goes uncollected. What they need now is federal legislation, and with each state-level bill or resolution, they’re sending Congress the clear message that the time to act is now. Let’s hope Congress is listening.


Virginia newspaper calls for sales tax fairness

March 25, 2011

Yesterday’s editorial in the Newport News Daily Press came out strongly in favor of requiring all retailers to collect the local sales tax that is due on purchases. The editors state:  “It makes absolutely no sense that if you buy the latest best-seller at your local bookstore, you pay sales tax—say, $1 on a $20 book. Buy the same book on Amazon.com, and you pay no sales tax.”

The argument about fairness is always framed in terms of the retailer—i.e., is it fair that an online retailer does not have to collect sales tax when a bricks-and-mortar retailer does? This editorial puts a new twist on the fairness issue, asking whether it is fair that one resident pays sales tax on an item when his neighbor, who buys the same item online, does not.

Bricks and mortar retailers add more than bricks and mortar to the state. They add jobs—sales clerks, managers, warehouse workers, drivers, etc. Many of them also contribute to their community, both tangibles and intangibles. The online bookstore isn’t the one that hosts story time for local children and readings by local poets. The online retailer isn’t the one that donates supplies for a civic group’s community service project. The manager at an online site isn’t the individual who helps a high school strengthen its vocational programs and get businesses involved, as the former manager of Patrick Henry Mall, Roger Brown, did for many years. Closing this loophole will, collectively, benefit taxpayers. It’s costing states billions of dollars in sales tax revenue. If they could collect it, they could reduce the pressure on income and other taxes.

The writer closes by suggesting a “uniform national sales tax” on online purchases. Although that’s not possible, for numerous reasons, a standard set of sales tax rules, policies, and procedures has been under development by 44 states and the business community for over ten years—the Streamlined Sales and Use Tax Agreement.

Unlike the author, we believe Congress is finally willing to level the playing field for online and offline retailers alike, and we expect the introduction of the Main Street Fairness Act soon.


All aboard!?

June 30, 2010

Originally posted 1/22/2010 – Last UPDATED 6/30/2010Wow, there has been a lot of activity in individual States over the last few weeks after the State of New York reported generating $53 million in new sales and use tax revenue from the 30 companies ensnared by their Complex Nexus legislation (often referred to as the “Amazon” Tax – as we have written about before). While Rhode Island and North Carolina passed similar legislation last year, they have not reported how successful their efforts have been. Amazon.com ceased all affiliate operations in RI & NC based upon their adoption of these laws. Amazon has not ceased affiliate operations in New York, but has been engaged in an ugly court battle to challenging the validity and constitutionality of the law. California and Hawaii also considered (but did not pass) similar legislation late last year.

41 States have already identified significant budget shortfalls, projecting the worst budget shortfall ever! Our friends at The Center on Budget and Policy Priorities just released a detailed (and terrifying) report outlining a projected $194 billion deficit for 2010, and another $180 billion deficit for 2011.

As of this writing four states five states (just added Vermont) seven states (just added Maryland & Illinois) eight states (added California) nine nineteen states (just added Connecticut) added a bunch more have considered some sort of sales (use) tax legislation:

STATE BILL INTRODUCED EFFECTIVE TYPE SUMMARY STATUS
ALL (FEDERAL LEGISLATION) HR5660 7/1/10 Main Street Fairness Act Gives states the right to require remote sellers to collect sales tax.  States must be members of the Streamlined Sales and Use Tax Agreement. Introduced into Congress by Rep. Delahunt (D-MA).  Has supporters from both the Democratic and Republican parties, as well as support from states.
Arkansas Entity Isolation Existing legislation prohibits merchants from practicing entity isolation (i.e. claiming that web operations and store operations are unrelated). Entity isolation legislation in effect.
California Entity Isolation

Notification

Existing legislation prohibits merchants from practicing entity isolation (i.e. claiming that web operations and store operations are unrelated).

Separate legislation has been considered to require merchants notify CA purchasers during checkout that they may owe Use tax.

Entity isolation legislation in effect.  The proposed new legislation on Notification passed the Senate 2/18/10 but failed to make it into final budget package.
Colorado HB1193 1/20/10 1/1/10 Notification

Reporting

Requires online retailers to provide CO purchasers with a summary warning on web site and invoices and requires retailers to report this information to the state annually.  Also requires retailers with over $1 mill annual sales to send a 1099-type notice to the customer.  Retailers can avoid these requirements by collecting the sales tax. Signed into law 2/24/10.  Affiliate Marketing rules were considered but not included in the final law.
Connecticut RB5481 3/8/10 Affiliate Marketing ($2,000 threshold) Died in Committee 5/5/10
Florida SB2552 Other Proposes FL allocates money to build software requiring credit card companies to collect sales tax. Unlikely to pass.
Georgia SB512 3/17/10 Contingency Fees Authorized GA to pay contingency fees to lawyers to sue retailers to enforce collection obligations. Passed Senate 3/26/10
Illinois SB3353 Affiliate Marketing ($10,000 threshold) Bill ‘held over’.
Indiana Entity isolation Existing legislation prohibits merchants from practicing entity isolation (i.e. claiming that web operations and store operations are unrelated). Entity isolation legislation in effect.
Iowa HF2510 3/1/10 Affiliate Marketing Died in Committee 3/2/10.
Maryland SB824 Died in Committee before the end of the 2010 legislative session.
Mississippi SB2927 1/20/10 Affiliate Marketing ($0 threshold) Died in Committee 2/2/10
New Mexico HB50 1/15/10 Affiliate Marketing ($10,000 threshold) Died in Committee 5/3/10
New York 6/1/08 Affiliate Marketing ($10,000 threshold) NY reported that it generated $53 million in new use tax from the 30 companies affected by its Affiliate Marketing law. Signed into law April 2008
North Carolina 4/23/10 Affiliate Marketing Signed into law in 8/5/09.
Oklahoma HB2359 1/5/10 7/1/10 Notification Requires retailers to post a notice to OK residents on the checkout page that they may be liable for use tax, and to disclose this on the invoice. Signed into law 5/28/10.
Rhode Island 7/1/2009 Affiliate Marketing ($5,000 threshold) Signed into law 6/30/09
Tennessee SB1741, HB1947 3/19/09 Affiliate Marketing

Notification

Died in Committee 4/20/10
Vermont HB661 1/29/10 Affiliate Marketing ($10,000 threshold) Died in Committee.
Virginia SB660 1/21/10 Affiliate Marketing ($10,000 threshold) Died in House subcommittee 2/24/10


Please Note:  The information provided on this web site is intended to stimulate discussion about sales tax issues affecting online merchants.  While we make every effort to provide accurate information, readers should refer to their own tax counsel, state and local laws and other source documents for more detail.

All of this activity at the state level should provide ample indication to our Senators and Representatives in Washington D.C. that federal action is necessary to prevent a flood of varied state-by-state laws. Urge your Senators and Representatives to ask around on the hill, and find out what is holding up introduction (and passage) the the Main Street Fairness Act!

Here at Fed-Tax.net we are eager to help all Internet merchants easily and automatically calculate and remit correct local sales tax for every jurisdiction in the United States – at zero cost to merchants. We will do this regardless of which system ultimately prevails, state-by-state affiliate taxes, or a federally authorized Streamlined Sales and Use Tax Agreement.

Our TaxCloud service will launch later this year (watch here for our preview release announcement soon), and will demonstrate beyond any shadow of doubt that it is no longer overly burdensome (technically or financially) for remote sellers to comply with all local sales tax laws. We are building TaxCloud to activate the opinion of the Court as originally penned by Justice Stewart in 1967 (and re-affirmed in 1992) which invited congress to act once “the skill of contemporary man and his machines” has solved this problem.

UPDATE – COLORADO SB 1193 2/2/2010: Last night the Colorado House of Representatives voted (on “Shall the bill pass?”) 33 (Yes) to 32 (No). So, they PASSED SB 1193 – Here is the Current (Amended) Bill now on its way through the Colorado Senate.

UPDATE – VERMONT HB 661 Introduced 2/3/2010: Just saw that Vermont also introduced their own version of an affiliate tax late last week. Sorry we missed it.

UPDATE – Colorado SB 1193 Revised 2/8/2010 – the Colorado Senate has revised SB 1193 significantly.

UPDATE – Maryland SB 824 Introduced 2/10/2010

UPDATE – Illinois SB 3353 Introduced 2/10/2010

UPDATE – California Senate passes AB 8 2/18/2010

UPDATE – Colorado SB 1193 is now LAW – The Governor of the State of Colorado – see Emergency Regulation 39-21-112.3.5.

UPDATE OKLAHOMA HB2359 is now LAW. It requires retailers to post a notice to OK residents on the checkout page that they may be liable for use tax, and to disclose that information on any invoice sent to the customer.


Response: “Tax and spend: Streamlining effort could raise revenues, but at the cost of jobs” on AugustaFreePress.com

June 15, 2010

There’s a great article on AugustaFreePress.com about the effect of the Streamlined Sales and Use Tax Agreement on small businesses. We responded with some thoughts, particularly on how excited we are about our upcoming launch of TaxCloud which will directly affect the conversation.


Response: Newsleader.com Editorial regarding Viginia SB 660

February 22, 2010

Virginia news organization newsleader.com published an editorial today entitled “Equalize Internet sales with tax.”

This article, and the editorial intent behind it are flawless – and the piece is well written and to the point. It illustrates cleanly and clearly why sales taxes should be collected on all Internet transaction with Virginia residents.

Unfortunately, it seems to be referring to Virginia Senate Bill 660, the Virginia legislature’s version of another Amazon Tax. The National Retail Federation estimates SB 660 could produce up to $18M in revenue for Virginia next year – but only if affected Internet retailers do not suspend affiliate marketing programs in Virgina. As was demonstrated in North Carolina and Rhode Island last year, such an assumption could prove disastrous. When those states passed similar legislation, the Internet retailers simply suspended all affiliate relationships in those states yielding zero revenue growth and adding lost jobs and business closures instead.

This is unfortunate on several levels, but perhaps most frustrating for Virginians is that SB 660 seems to be passing while less than 1 week earlier a better and more appropriate legislation, Virginia Senate Bill 340, was delayed for consideration until 2011.

Under Virginia SB 340, Virginia could be able to collect $156.6M in additional sales tax revenue in 2010 (almost 9 times more revenue than targeted by SB 660).

Naturally, we posted a response directly on the newsleader.com site.