e-Roundtable on The Main Street Fairness Act: Sales Tax Buzz Consults the Experts on Internet Sales Tax Act
Read what Wal-Mart, J.C. Penney, Tech & Government say about a U.S.-wide Internet sales tax system
I recently hosted an e-Roundtable event to address what many policymakers believe to be today’s most important topic within the transaction tax arena, namely the advent of a U.S.-wide Internet sales tax system.
The Main Street Fairness Act (discussed by an earlier nomenclature, Sales Tax Fairness and Simplification Act, and officially as H.R. 3396 and S. 34 in earlier posts) is currently in bill form and is steadily making its way to being introduced to the full U.S. Congress.
Need a refresher on the prospects for either state-by-state, federally mandated, or digital downloads-only Internet sales tax as background to today’s roundtable discussion? Please read here, here, and here. And for background on the federal discussion, including state revenues lost to e-commerce and overall declines in sales tax revenues, please read here and here.
Do you want to talk back to today’s panelists? Post your comments either identifying yourself and your organization or, if you prefer, anonymously – and keep the dialogue going. There are more than just two sides to the debate over the Main Street Fairness Act, and we would expect to hear from as many of those sides as possible.
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Sitting on our panel, in alphabetical order by participant, rather than by organization, are the following distinguished Sales Tax Buzz guests. For space purposes, I’ve limited the biographical information and have provided links to the panelist’s professional background summaries and photographs, when available, as such:
R. BRUCE JOHNSON, a lawyer and CPA, is a Commissioner with the Utah State Tax Commission. Prior to his appointment, Mr. Johnson was a partner in the law firm of Holme Roberts & Owen LLP and previously served as a trial attorney for the Tax Division of the U. S. Department of Justice.
STEPHEN P. KRANZ, a partner at D.C. law firm Sutherland, serves as the President of the Business Advisory Council to the Streamlined Sales Tax Governing Board. For more information on Mr. Kranz, please see here.
FREDRICK J. NICELY, serves as Tax Counsel with COST (Council on State Taxation), and formerly served in the Ohio Department of Taxation. For more information on Mr. Nicely, please see here.
RORY RAWLINGS, a CPA, is founder of Avalara and serves as its Chief Tax Automation Officer. Rory holds four patents related to sales tax technology and is a frequent industry representative on Capitol Hill on matters relating to the SST, tax technology, and other matters. For more information on Mr. Rawlings, please see here.
WARREN D. TOWNSEND, is Senior Director, Specialty Tax, for Wal-Mart Stores, Inc. and is a Strategic Planning Committee member for COST.
WAYNE ZAKRZEWSKI, is the Vice President and Associate General Counsel for Tax for J.C. Penney Company, Inc. where he has responsibility for all legal matters related to tax, audits of sales, use and state income taxes, property tax, and state tax research and planning. He is a member the Arkansas and Texas Bars, has a B.A. in English from the University of Dallas and a J.D. from the University of Arkansas at Little Rock and served from 1981-1988 as Attorney/Deputy Chief Counsel at the Arkansas Revenue Division. He has been an active participant in the Streamlined Sales Tax Project since its beginning, currently serving as a member of the Board of Directors of the Business Advisory Council to the Governing Board of Streamlined Sales Tax Agreement.
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e-Roundtable on the Main Street Fairness Act
Question from Ms. Azeff (Sales Tax Buzz): Do you think that the bill, when introduced, would be ripe to pass now more than ever, particularly given today’s socio-economic and political climate? Why or why not?
Answer from Mr. Johnson (Utah State Tax Commission): I think the climate for passage is better now than it has ever been. With Wisconsin and Hawaii coming on board we have some new momentum. Moreover, I think the new administration is less likely to view this as a “tax increase” than the old administration. As we all know, the Main Street Fairness Act is not a tax increase; rather, it is a tool to allow states and retailers to more easily collect taxes that are already due under existing state laws.
Answer from Mr. Kranz (SST Governing Board): Assuming the bill is introduced, the bill has a better chance this year than in any previous year. The Congress seems more interested in the issue, the stakeholders who support the bill have done much more to lobby the issue than in previous years, and the number of states involved in the effort continues to grow. State membership in the SST continues to grow, and part of the reason for that is that their budget deficits are in record high territory and they are looking for ways to get revenue, in particular ways that would not force them to raise taxes on businesses and consumers who are in the state. SST gives the ability to collect the taxes already owed, instead of creating new taxes.
Answer from Mr. Nicely (COST): Given the fiscal crisis most states face today, the climate is ripe for the proposed Main Street Fairness bill. There are hurdles, of course, that will have to be overcome.
First, there is the perception by some that this bill represents a tax increase. Technically, this is false since all sales tax states have requirements for consumers to self report the tax they owe from sellers not required to collect a state’s sales tax (but if the bill passes the consumers would see more tax collected on their invoices when placing orders over the Internet and via catalogs).
Second, the issue of compensating sellers for their cost to collect the states’ sales and use tax has not been resolved. Of concern is that over half of the states that are full or associate members of the Streamlined Sales and Use Tax Agreement do not presently provide any compensation to sellers for collecting the tax.
Sellers justifiably want reimbursement for their cost to collect the tax. At the same time, the states are concerned that a high compensation level may negate any gains from remote sellers colleting their taxes. Negotiations on this issue are continuing. If these two obstacles can be tackled, introduction and passage of the bill is greatly enhanced.
Answer from Mr. Rawlings (Avalara): Why now is it more likely to pass? Because the states are short of funds, they are in a state of funding shortfall and this Act allows the states to collect taxes that are already due them. The states are undercollecting taxes to support local services such as police, fire, schools, parks, etc. that have been voted on by local constitutents and are not being paid. The taxes that Bainbridge Island voted on are not being collected, for example, and yet we voted to support those taxes for local infrastructure. They’re not being collected by Internet retailers.
Answer from Mr. Townsend (Wal-Mart): Now is the time for passage of the bill. The states need to receive the tax in a more timely manner. Allowing individuals to self-accrue the use tax on their Income Tax return gives as much as sixteen months lag in tax collection.
Answer from Mr. Zakrzewski (J.C. Penney): I think the chance for passage is better now than at any time in the past. There is a better understanding that this is not a new tax but an old tax that was uncollectable. True fiscal conservatives realize that it is good tax policy to collect all that is due under currently levied taxes because it avoids the necessity of rate increases or passage of new taxes to maintain adequate funding for the government.
Sales Tax Buzz: What would be your (and/or your organization’s) interest in seeing this bill enacted into law?
Mr. Johnson: There are three good reasons to pass the bill. First, sales tax compliance is difficult, confusing and expensive for multistate retailers. The Act would require states to stay in compliance with SST Agreement, including uniform definitions, simplified procedures, and technological tools, if they wanted collection authority. Without that incentive, states might go back to “business as usual.”
Second, enactment of the bill would level the playing field between Main Street businesses and remote sellers. Each business model has its plusses and minuses—that is not a concern of the government. A tax collection obligation, however, if imposed on any seller, ought to be uniformly and equitably imposed on its competitors also.
Third, state and local governments are losing revenue under the current system. It is simply not cost effective for states to aggressively enforce a use tax obligation on small consumer purchases.
Mr. Kranz: I wear a number of different hats. From my experience working on the SST project since inception, I work with the business interest – and let me say that retailers and communications companies are supportive of the effort because they are already facing the burden of collecting tax while their competitors do not and those industries would benefit from simplification of the tax system and a level playing field.
Mr. Nicely: COST, a nonprofit trade organization representing approximately 600 multijurisdictional companies, remains supportive of the bill being enacted into law so long as it contains the minimum simplification requirements. Any change in those requirements, such as eliminating the requirement for uniform and central administration of the local sales taxes or the provision requiring reasonable compensation to sellers, would jeopardize COST’s support. [Note from Althea Azeff: For a .pdf copy of the formal position paper by COST on its support of the Act, so long as the aforementioned conditions hold true, please email me at althea.azeff@att.net or message me on Twitter at http://www.twitter.com/SalesTaxBuzz]
Mr. Rawlings: As you well know, Avalara is one of only a handful of Certified Service Providers and, as such, it may be argued that it is in our company’s interest to support this bill. But note that compensation issues have not at all been hammered out just yet and that support for this bill has more to do with the attraction of using technology in such a way that it takes a complex tax regime (that we have today) and simplifies it.
Mr. Townsend: Wal-Mart would like to see a bill passed that would level the retail shopping experience to an issue of product and shipping cost. Today, several customers are unaware that if the retailer does not collect the tax , then the tax remittance becomes the responsibility of the customer.
Mr. Zakrzewski: As a major retailer engaging in all channels of commerce, J.C. Penney supports Streamlined legislation since it will level the playing field between the channels and take away advantages that some retailers obtain not because they are innovative or deliver value to their customers, but because they are able to avoid tax collection due to their limited activities.
Sales Tax Buzz: What are the key benefits under The Main Street Fairness Act to businesses, states, and consumers?
Mr. Johnson: I think the benefits to businesses and states have been outlined above. Compliant consumers would not have to worry about accruing use taxes. More importantly, however, I think a level playing field ultimately benefits the retail community and a vibrant retail community, with many purchasing options and different business models, ultimately benefits consumers. Finally, the retail environment in the U.S. is highly competitive. If we can reduce compliance costs for retailers, much of the savings will be passed through to consumers.
Mr. Kranz: For business, the benefit is simplification of a complicated sales tax world. For some businesses, a benefit is the level playing field with their competitors who do not collect tax. For states, it is having a broader set of vendors collecting tax liability that is already on the books. For consumers, it’s having the business collect and remit the tax instead of forcing the consumer to go and self-report use tax.
Mr. Nicely: Ultimately, the hope is that business benefits from having reduced compliance costs as a result of the states having more uniform laws. The jury is still out on whether that will be achieved. For the states, it is a revenue enhancement issue along with it “leveling the playing field” for businesses located in their state (by being able to require remote sellers to collect their taxes). Consumers complying with the states’ sales and use tax laws (many businesses) gain by the tax being collected by others that make taxable purchases of goods and services.
Mr. Rawlings: I think it’s a very for-business picture – the bill wants to make it as easy for business to comply as possible – while at the same there is a pro-local business Buy Local theme and the reduction of complexity through technology. It’s a win for the states because it’s really about enforcing existing tax law to the benefit of local community services – which makes it a win for consumers/people in each jurisdiction. Without the ability to pay for basic services, such as police, fire fighters, libraries, and other keys that keep communities safe and livable, no one wins. And particularly in the current recession climate, this bill just makes sense.
Mr. Townsend: The benefit to retailers (currently collecting sales tax) would be a level playing field in the shopping experience. For states, the timely collection of tax that is due on tangible personal property, in addition to tax revenues currently not being reported to the state. And for consumers, the benefit would be the alleviation of the burden of keeping track of theirpurchases during the year in order to accurately self-remit the sales tax.
Mr. Zakrzewski: Simplification of sales taxes reduce business and government costs both of which are good for consumers. In addition, full collection of the taxes due on all transactions helps keep the tax rate low, a good thing for consumers, business and government. The bill restores state sovereignty that was taken away by the United States Supreme Court in the 1967 case of National Bellas Hess v. Illinois Department of Revenue.
Sales Tax Buzz: Would the bill affect in any way U.S. competitiveness within the global e-commerce economy, not just within the U.S.?
Mr. Johnson: Anything that reduces the compliance costs for our retailers makes our retailers more competitive in world markets. If the retailers don’t have to spend as many resources figuring out state sales tax laws, they can apply those resources to global challenges. Furthermore, the competitive disadvantage that Main Street retailers currently suffer probably affects locally and domestically produced goods disproportionately. In-bound foreign sellers currently enjoy the same protections that out-of-state U.S. sellers do. Although the Act may not affect foreign sellers directly, it will affect foreign goods sold through U.S. distribution facilities.
Mr. Kranz: I don’t see how the legislation would impact U.S. competitiveness. Foreign companies that make sales in the U.S. already must comply with state and local laws, just as a company that is based in Maine has to comply with state and local laws when it makes sales into Ohio.
Mr. Nicely: That is a good question. COST has not seen any studies showing that the enactment of the Main Street Fairness bill would hinder or help the U.S. competiveness with the global e-commerce economy. The proposed bill would only require U.S. based sellers to collect the states’ tax; foreign sellers are not impacted. How big of an issue this is with those sellers having increased shipping costs and U.S. custom regulations to follow is unknown.
Mr. Rawlings: It levels the playing field for local businesses. A company in London would be more at a disadvantage than a local retailer here on Winslow Way. The local would have more advantage under this bill than a retailer in another state or another country because it would now have to collect sales tax, but the cost of the collection for that sales tax would be paid for them.
The revolutionary part of this bill that may not exist elsewhere in the world is that governments recognize that there is a cost of compliance and they provide either vendor compensation or compliance services free of charge. They are asking businesses to be their agents to collect taxes and recognize the costs associated with it, which applies to anyone who collects taxes for those states, including outside of the United States.
Mr. Townsend: I do not know of any competitiveness issue resulting from the law being enacted.
Mr. Zakrzewski: No response provided.
Sales Tax Buzz: What would you want the public, members of Congress, and the business community to understand about this bill?
Mr. Johnson: I would emphasize for all of those people that the Act does not represent a tax increase. It merely provides a better way to collect existing tax obligations. It will dramatically reduce the costs of compliance for retailers that currently have a collection obligation, and it will reduce uncertainty as to who has such an obligation. Uncertainty is bad for business and it is bad for the economy.
Finally, it’s the fair thing to do for our Main Street businesses and the customers who support those businesses.
Mr. Kranz: To the business community, I’d say that it simplifies the tax structure to some degree. And to the extent that it does not simplify the structure, it provides for two things that are intended to cover the remaining burden on commerce: technology and compensation. We’ve made the system a little simpler, here’s some software that will help make it simpler, and here’s some compensation to help cover the remaining burden. Compensation is a is a significant benefit of the legislation.
I would tell the public that having a vendor collect the tax eliminates the burden of having to self-report and the risk that if you do not, you are violating the law and could be sanctioned appropriately. There are instances where the states pursue people for shopping remotely and not remitting the appropriate tax due.
And, as for Congress, I’d play up the fact that instead of giving the states federal dollars in assistance, Congress should consider giving the states the ability to collect the liabilities that are already on the books.
Mr. Nicely: Currently we do not have a bill introduced, but assuming it contains the minimum simplification requirements, COST feels this bill represents a partnership by the states and the business community to mitigate the complexity of the states’ sales and use tax laws raised by the U.S. Supreme Court in 1992 in Quill (504 U.S. 298).
Mr. Rawlings: I’d want to get the word out to everyone. The Act says that Internet retailers have to collect sales tax in all states, which makes it really complex but, on the other hand, technology is provided absolutely free of charge to calculate the tax and to perform the collections. The technology takes the complexity of the bill and, in fact, makes it easier and cheaper to comply than it is today.
It levels the playing field and it does not create any new taxes.
Mr. Townsend: That the bill does not result in a new tax to the consumer. Consumers are currently responsible for self-remitting the tax when a retailer does not collect the tax.
Mr. Zakrzewski: I would only reiterate that this is not a new tax but merely a change that allows enforcement of the existing system which will make it more efficient and avoid the need for higher rates, or worse enactment of new, different and less efficient taxes.
Filed under: E-Commerce, Legislation, Taxability, The Art of Blogging Tagged: | Avalara, COST, E-Commerce, e-commerce transactions, e-roundtable, H.R. 3396, internet tax, J.C. Penney, Main Street Fairness Act, S. 34, Sales Tax Fairness and Simplification Act, SST, Streamlined Sales Tax, Streamlined Sales Tax Governing Board, Sutherland, Utah, Wal-Mart
I so wish I could have participated in the round table discussion. While I am against the support of collecting out of state sales tax, I recognize the rights of States to collect Use Tax. This is a burden that should be placed on the consumer, not the seller. State Law(s) support this position. One of the problems lie in the fact it is a voluntary, when it should be mandatory. By simply enforcing existing law (make it mandatory), the need for new law (and SST) would be un-necessary.
In my blog I offer a solution
http://www.thedumbdog.com/blog/?p=62
Simply put, have the merchant accounts (Visa, MasterCard, PayPal, Amazon) collect the Use tax and submit the funds directly to the States. In turn, the States would pay for the associated fees. I’m sure that companies like Avalara could lease the software to the MA’s if they would like. This system would also work for existing in-state sales tax as well. Take a WalMart or JC Penny store that does $10M gross sales. 6% sales tax = $600K tax revenue. Even at a low MA rate of 2%, they pay credit card centers $12K in fees that do not belong to them .. those funds belong to the State DOR (another out of pocket expense for the Big Box Store). Having the Credit Card companies pay States directly (States pay the fees) allow instant funds transfer, fair collection of Use Tax, and a paperwork & $ savings for the seller.
@ Mr. Rawlings (Alavara)
>The taxes that Bainbridge Island voted on are not
> being collected, for example, and yet we voted to
> support those taxes for local infrastructure. They’re
> not being collected by Internet retailers.
As an out-of state seller, it is really none of my business that a local town voted for 1% option sales tax, nor should I be expected to keep track of over 7500 tax districts (not defined by zip code) . To use a service, even for $30/mo. is an expense I can’t afford, and BTW, would you accept liability if I were audited from an Out-Of-State DOR?
Credit Card companies today have information about buyers habits to make IRS jealous. It would be simple to have them convert sales data and apply proper Use Tax. States would LOVE to get instant funds for the proper application fees. I would gladly waive any compensation in lieu of this plan.
How can this not be a win-win for sellers, buyers, and respective States?
The Main Street Fairness Act, what a folksy, home-spun name for legislation. It surely conjures up the image of the storefront, mom and pop pet store. I picture squeaky hardwood floors, ceiling fans lazily spinning above my head, and while I stop at the counter to pay for my purchase (with sales tax), I chat with the owner who asks about my two dogs, by name. This is the business that is put at a competitive disadvantage by internet-based retailers. Mr. Yockey can claim that “As an out-of state seller, it is really none of my business that a local town voted for 1% option sales tax…”, however, his business is certainly willing to engage in commerce with the same customers as the local pet store (that has no choice but to make it their business to include that sales tax in each and every taxable transaction). Justify the reason for that difference however you wish, but it still is a competitive advantage for the internet-based retailer.
I would have found it insightful to have representation in the round-table from both independent, local businesses and internet-based retailers. Having Walmart and J.C. Penney representing the “Main Street” business is a bit of stretch (given my very Mayberry-esque interpretation of what constitutes a “Main Street” business). I believe their interest in the Main Street Fairness Act rests in the fact that as a result of their brick and mortar box stores being located in most every state in the nation they must collect sales tax on both in-store purchases and on any internet sales made from their corporate websites. They are looking to level the playing field with their much junior internet competitors. Essentially, if we have to collect tax in almost every jurisdiction, then Mr. Yockey should have to as well.
Mr. Yockey, in general, recognizes the current statutory requirements that ultimately the onus is on the end-consumer to remit the tax due on their purchases. He is inaccurate when indicating that the enforcement of (consumer) use tax statues and regulations is ignored by state tax agencies. Sales AND use tax audits are commonplace for businesses and corporations. However, these audits are facilitated by the fact that it is common practice for businesses to retain detailed sales and purchase records as the basis for both income and sales/use tax filings. Consumers are not typically held to the same standard for at least consumable purchases, making audit efforts to enforce (consumer) use tax statues almost impossible. Moreover, sales and use tax audits at corporations, while often lengthy and burdensome, will result in the collection of tens of thousands of dollars under collected tax. Attempting an audit enforcement model for an individual or household would most likely result in the identification of maybe hundreds of dollars, and in rare occasions thousands of dollars of unpaid taxes. Obviously, this is not a sustainable activity from a cost justification perspective where it would require a vast quantity of audits to potentially make this activity payoff.
However, this discussion hinges on making adjustments to the compliance activity and the ownership of the sales/use tax collection. A substantially different form of retail commerce has evolved over the course of the past decade. Existing statutes and regulations concerning sales tax are based upon traditional retail trade activity, typically involving a physical, brick and mortar retail location that must conform to business licensing regulations which ultimately include the collection of sales tax as an agent on behalf of the state and local government agencies. The only significant retail trade activity model that came close to internet-based commerce was the catalog company. The biggest players in that retail space were typically companies such as Sears, J.C. Penney, etc. Those companies generally had brick and mortar retail locations in most states and accordingly they were required to collect sales tax on their in-store sales as well as their catalog sales.
State department of revenue agencies many times are the archetypical lumbering, bureaucratic organizations of urban-myth proportions, and are often creatures of habit (bad habit). Slow to respond, slow to evolve, and often rely on old and dated processes when confronted with new problems and especially new technology. In the past, I have been party to a significant number of sales and use tax audits by the State of Ohio, and was typically confronted by a state auditor that wished to perform a complete review of all purchase activity rather than perform a statistical sampling of purchase records.
It only holds to reason that to address the problem of lost revenue due to e-commerce retail activity the immediate response of each state is to go to the seller, their long time agent-model, to enforce collection activities. Streamlined Sales Tax works to simplify that process, but still targets the internet-retailer, a tried and (previously) true means of tax collection. What the Streamlined Sales Tax organization seemingly fails to consider is that the means of payment in the e-commerce retail space has also dramatically changed. Credit card and e-payment systems (e.g. PayPal) dominate the payment process for internet retailers. Logically, that is the common link between almost all internet retailers and state tax agencies. It seems to me that forging alliances with payment processing organizations, the life blood of e-commerce, and engaging those organizations as state agents for tax collection provides the most direct solution. It would also make sense that if the Streamlined Sales Tax organization were to successfully engage payment processing companies as their agents, it would provide an extremely attractive enticement for the unaffiliated states to become full members of SST.
While Mr. Yockey and I don’t see eye-to-eye on all of the issues surrounding this problem, I believe we do agree on the potential solution. Leveraging payment processing organization’s position in the e-commerce retail space certainly requires a significant redesign of the sales and use tax collection models currently in place across the nation. However, the substantial change in the retail trade environment as a result of e-commerce dictates utilizing technological advancements to track the associated compliance activity. Merely targeting internet-based retailers through this legislation and changing nexus definitions to require out-of-state business to collect sales tax using the same collection and reporting model positions this legislative initiative for failure.
@ Mr. Curtis,
The idea that internet sellers have a competitive advantage is a perception, not necessarily fact.
~ Buying from a Bricks & Mortar store does not have a price for shipping. You do pay for shipping online. For heavier items, that can get expensive.
~ You can look, touch and feel the product before buying.
~ Questions? The clerk or sales person will answer them instantly. You don’t have to wait a day or two for an email reply.
~ Returns are handled faster than an online business.
~ The biggest disadvantage for a B&M is travel time, gas, finding a parking spot, and waiting in line … advantage … online sales
~ There is not a rule prohibiting a B&M from selling online.
As to Sales Tax or No Sales Tax as a price advantage selling online … Is that really a Deal Breaker? Most websites don’t even say how much the shipping cost is until you reach the checkout page. Is adding another 4-9% Sales Tax going to make a buyer back out of the sale? I don’t have a crystal ball for that answer, but I doubt it.
Your contention that Sales and Use Tax systems within the States is working. Maybe for business, but not for the consumer, which is the point of my blog http://www.thedumbdog.com/blog/?p=62 . With Business Sales Tax Return form (at least here in South Carolina) the line on the form for Use Tax is for Business items purchased for personal use. That is what I pay Use Tax on. And that single line is a large sum for the Sate on Use Tax??? Please provide some examples of Business Use Tax. I can’t imagine where that would be a large figure. Use Tax for a consumer is a single line on the yearly tax form. It is either ignored or lied about. Yes, it would be a waste of the States’ time to audit an individual consumer to collect $5.00 of Use Tax, but my contention is to collect at the point of Sale by the CC Merchant Account (remit directly to the State), and let the consumer apply for a refund on his tax form. Of course, the reason the State does not do this is that there would be more angry taxpayers, and lawmakers DO want to be re-elected.
What about the consumer in Massachusetts who crosses the State Line to tax free New Hampshire to purchase tangible (taxable) goods. Why are they doing that in the first place? Price, yes, but also they are telling Massachusetts that TAXES ARE TOO HIGH. Yes they are saving pennies to several dollars on each purchase by avoiding the tax. Multiply that times many thousands of customers, and you can see how States like Mass. are down on legal taxable revenue, and it is enforceable. Credit Card purchases have a name and address. The software can add applied Use Tax and can be added to the bill after (during) the sale. This should not be a burden on the retailer. They have no way of knowing which tax district or what proper tax to apply.
Businesses without nexus should not have to collect tax. You said you live in Ohio. Should it be your concern that of the 46 counties in SC, some want a base tax of 6%, some want 7% for goods going in, other counties want 7% for goods going out, to complicate it further, still more voters decided they want tax for goods going IN and OUT! And I haven’t begun to explain the extra rules Cities and Towns have placed. Want it more complicated? The tax districts are not defined by 5 digit zip code.
And BTW, I do collect Sales Tax for In-State Sales.
So lets goto a 9 digit zip code system, or better yet, a GPS location for each household and business. I can’t afford a software system or a service, so I would need to manually figure out the correct tax BEFORE the sale was made. Hard to do with a 24/7 internet.
I am glad to see that you agree with me that the Credit Card companies are the best avenue to leverage funds. It reduces paperwork and saves business $$ on fees. Your post (reply) was an enjoyable read.
[...] e-Roundtable on The Main Street Fairness Act: experts discuss Internet sales tax [...]
Regarding Merchant Banks as Sales Tax Management Services…
This is not a viable option (although creative, and certainly thought provoking).
This would only be possible if:
a) all the items being purchased from the seller of record per transaction had only one possible tax classification, and
b) nothing was being shipped
However, a majority of online purchases involve multiple discrete items, each with potentially different applicable sales tax rates (such as clothing, food ingredients, prescription drugs, digital audio works, etc.) – and for physical products, there will be shipping fees involved.
The only way a merchant bank could handle such a diverse array of applicable tax codes would be through specific knowledge of all the items or services being purchased.
To apply the correct tax rate, merchant bank would also need to know the intended destination of the purchase beyond the billing address of the customer.
Unfortunately, in many cases the billing address and shipping address are distinct and separate locations.
Also, how would a merchant bank know if the end-customer is actually tax exempt (as when purchasing for resale)?
So, for merchant banks to process sales tax collection and remittance, the merchant bank would need to modify their systems to:
a) Know the exact quantity, price, and tax classification of each line item in a purchase, and
b) Know the exact type and price of customer selected shipping method, and
c) Know the exact shipping destination (as distinct from billing address), and
d) Know tax exemption status for the purchaser
These changes are not likely to occur at the payment processor – particularly because tracking this information is what every major shopping cart system already does – all the cart needs to do is the tax lookup per cart item – this is appropriate place for lookup to occur.
Let’s let the merchant banks do what they already do (well); authorize and process payments.
Lets empower the vendors to easily (and cost effectively) determine the appropriate tax rate for each item in their customer’s shopping cart.
Finally, if you really want the Merchant Banks to manage Sales Tax, why draw the line there? Under the suggested reasoning for having the Merchant Bank collect and remit sales tax, why not expect them to also deduct and remit the vendor’s Federal Taxes as well? All they would need to know is the vendor’s cost of goods and overhead per transaction.
@ David
We have discussed this before. Amazon and PayPal both have the billing and shipping information, as well as the item type shipped, and they process Billions of Dollars worth of transactions each year. If they can do it, so can Visa, MC, Amex, and Discover.
Coding the type merchandise in a shopping cart is easy, as well as the states that include sales tax for shipping and those that do not charge sales tax for shipping. (My State does not, I know of others that do) In turn, that code can be sent to the Merchant, and their central database can figure the tax a lot easier than I can. Even if the tax rate were fair, as in one tax rate per State, you are asking EVERY online seller to be knowledgeable to 45 State Tax rates, plus file 45 quarterly/yearly tax returns. Now lets expand that to 7500 tax districts …. and you see this as a SIMPLE answer?
Also, as we discussed before, tax districts are not divided by 5 digit zip code. While 9 digit may be the answer, less than 5% of buyers now submit that information. Going to USPS to retrieve that information BEFORE the sale is completed is not feasible considering instant electronic payments. Forcing the buyer with extra tasks/page views will produce Shopping Cart Abandonment, and a lost sale.
And you said your company will be offering a service. Will this be a plugin for shopping carts? What about PayPal website webpayments (non-commercial shopping cart)? Would your service as a tax processor accept responsibility in case of a tax audit?
You still have not addressed one of the biggest tasks facing Sates now. How to enforce existing Use Tax law for B&M stores from citizens who buy out-of-State, as well as online sales. If they simply did that, there would be no need for new law, SST, or even this blog discussion.
Billing address/ Shipping address. If I’m not mistaken, a street address is required for new applications for credit cards, due to DHS standards after 911. They may have a PO Box for billing, but they also are required to have a street address. ALL of my merchant account purchases for my website have a shipping address which I can access through my Merchant Account. So far, they match my shopping cart records. A rare exception would be a gift sent to a ‘foreign’ address … who’s responsibility would that be to collect the fair tax? I would put that burden on the consumer … the same burden I would put to contest any Use Tax collected.
We are presented with more problems than solutions. I offer a simple solution. You offer an impossible task, or at the least, a very expensive one, both in time and $$. For Merchant account companies, this would be a minor expense, which can be absorbed / paid by State DOR’s.
It’s time to fight for the little guy, and ignore the PAC $$ the Merchant Account processors are putting forth to put Small Business out of business.
http://www.thedumbdog.com/blog/?p=62
Mr. Campbell ignores a key point in this discussion; the retail sales model around the world has dramatically changed over the course of the past decade with the advent of web-based e-commerce. Existing sales and use tax statutes across the nation are based upon the traditional retail sales model, driven primarily by end-consumer purchases transacted in brick and mortar stores.
Technology and the internet provided the avenue for this new breed of retail commerce. However, state and local governments appear to be stubbornly attempting to address their sales tax collection issues using a methodology built upon the brick and mortar retail sales model. If all the Main Street Fairness Act accomplishes is giving the state and local governments the go-ahead to change their existing Nexus rules and regulations to target out-of-state e-commerce retailers, it will accomplish two things. State and local governments will experience a dramatically increased cost for enforcement activities (e.g. audits) to ensure compliance by the enormous number of internet-only retailers; this cost significantly diminishing any net gains from compliant internet-based business. The increased internal cost of compliance for many small e-commerce businesses will drive them out of business, resulting in the internet retail space to be dominated by large corporations (looking much like the brick and mortar retail landscape and the dominance of the big box stores).
Your claims that the Merchant Bank organizations do not currently have sufficient information to perform the necessary sales tax calculations are slightly off base. They do not have this information because to merely process payment transactions, they do not need to collect it. All the information you mention is readily available from the processed order: ship-to address, quantity of product purchased, selected shipping method, etc. All that is needed is to use technology to capture the information. Merchant Banks’ do not need to be tax calculation specialists; there are technology companies that currently provide that service. Mr. Rawlings, participant on the e-Roundtable, is the founder of one of those companies.
Mr. Campbell scratches his head and sees all the reasons for status quo. In 1890, when the Eleventh Census of the United States was to be taken, there was a realistic prospect that the tabulation of the census results would not be completed prior to the taking of the next census in 1900 (some estimates ran as high as thirteen years for completion of the 1890 tabulation). The 1880 Census had taken seven years to tabulate. Rather than sticking to the same process of manual tabulation, the use of technology was introduced through the use of Herman Hollerith’s tabulation machine. Herman started his own company in 1896, which eventually merged with three other companies to form the organization that became known as IBM. I guess he’s partly to blame for this mess we’re discussing now. Solve one problem, create another.
Instead of state and local governments falling back on their dated sales tax collection processes, perhaps build relationships with the Merchant Banks, the primary monetary transfer point for internet retail sales transactions, and leverage technology provided by companies like Avalara. The recovered sales tax revenue realized by this partnership, even with agent fees paid to Merchant Banks, will substantially increase. Change the compliance model, not the Nexus laws. While Mr. Campbell calls that “creative,” I call it innovative.
The retail sales paradigm has significantly shifted over the course of the past decade. Accordingly, the sales tax compliance model must be significantly altered to accommodate the shift.
Nice! Thanks to author this post
[...] e-Roundtable on The Main Street Fairness Act: experts discuss Internet sales tax [...]
I see this as over complicating things.
Presently if the business has a presence in a state it is required to collect sales tax – at least as I understand it.
Why not simplify things for out-of-state sales. A flat 5% internet sales tax. Quarterly the business collecting the 5% tax on all out-of-state sales sends 4.99% to the state.
.01% being the discount or handling fee. With todays bank to bank transfers this should not be a problem.
Use tax while on the books cannot be enforced without the out-of-state retailers sending purchase information to the state. That alone will flood the state and trying to enforce reporting and collection will cost more than the revenue not to mention the added cost for the retailer.
A rather self serving single sided discussion I thought. Where were the representatives for small business. As usual we do not matter and are not considered in spite of collecting a substantial share of the nation’s taxes. Business is being saddled with an ever increasing bill for collecting taxes for local and federal government. In simple terms this is as unjust as a government representative commanding a group of housewives to clean streets. Taxes levied on the individual should be paid by the individual – PERIOD. If the government desires for private individuals and business to collect its taxes, it should pay the going rate for doing so which could be established by what we pay to maintain the IRS. Speaking for my small business, we can currently not afford to comply with the State of Washington destination tax rules. If this system should be extended to all 50 states we would be put out of business simply by our accounting and reporting expenses. I have spoken to our shopping cart providers about this, and so far it seems they have no plans for adding capability for multiple state tax rates. Fortunately, the state realized they had jumped the gun, and have given companies like ours the ability to charge an average tax rate for the state and submit a spreadsheet detailing the orders. That way the state can figure out the distributions for themselves. I have no problem with leveling the brick..and online playing fields, but the government should not have the right to discriminate by saddling business with their collection expenses. That applies to everyone, and it’s about time business starts speaking up – especially small business.
If you look back in history,
Durring the createin of the United States we surffered from Tea Taxes and in Boston Harbor revolutionaties trhough the Tea bexes into the harbor. It is about time for Retailers to throw the Tax collecting back to the States and MC VISA, AMEX, Diners and DISCOVER.
If you remember history or seen movies like Felicity?
A nice Local Store sold UK Tea and then stopped becasuse it did not want to support taxes and issue of them being sent our of this new upcoming country> the Call was for Local Payment to Elected Officials or putting a an offiicial from the Colonies to the United Kingdom as a representative. The rest is hiostory. But the point? Even THEN Sales Taxes was a bane and curse. If pitted store against store whehter to sell british Tea and charge the Tea Tax! Give me Libety or give me Death as Patrick Henry stated. Now Generation later we face a imilar issue; States charging sales tax to Sellers Our site their States. Again doe the seller have represnsation or any local benefit from this out of state Taxing auhtority. The New Colonial Government sam the need for Local Control and Local Taxation. But now is the 20th Century and things have changed. Now we have 7,500 tac jurisditions and counting. and incrediby complex and changing rules. And you want that starting out intener site in some small town in Oregon that does not even charge Sales taxes locally collection for every state that Does have a sales tax? Here is the solution, take this away fromt he States and all those endless rules and jurisdictions and let them petition and get the money collectd from one central Federally based payment sytem to disbuse the funds on a monthly basis to gvei the money collected to all the local needs across the country. If the founders of the US Constitution had seen what a complex and messy sytem when applied to OUT oF STATE Sellers who dont even have local represenation and makeing them Pay fhte expense of collecting it? The answer is Revolutionary steps not patching a complex constantly changing sytem. Let and expert Fedearl Sales Tax Agency deal with them. And knock some sense into them. the States are the Children of the Parent wiich if the United States of America. under Federal control. The Federal Control should be given its control Back! And Saving EVERY BODY including the States, Sellers, Buyers local and intienet sellers MONEY and TIME.
The thought of implementing
7,500 or more tax levies and dealing with up to 60 different payment places simply
Unfeasible. And not even getting Paid to send them and collect their money for them.
But possibly reprimanded for NOT.
The costs would be very high just to program into a website all those possibly infinite and
Arbitrary rules. In my opinion don’t even let states use their conspiring SST system but make it a
Federally mandated Sales Tax one location system with All states taking their share of the billion dollars
Collection by the Federal government and the retailers not having to choose or figure our what states
They work in or not since USE taxes are pretty much standard in almost all the States. Don’t make
“better’ a broken system but start from the ground up and make a SIMPLE SENSIBLE system for collecting
Small payment from retailers online and Offline. Reducing their need for accountants to verify
Thousands of transactions to 1 or more states or jurisdictions but just to one authority a Federally
Mandated and controlled States Tax which then the Federal Department doles out in agreed to based on
Current needs with future needs for such as tragedy areas, storm areas. Etc.
Don’t patch a complex messy system and expect retailers to learn all those taxes and authorities one way or another but
Learn One Global Federal Sales Tax agency that is to monitor transactions online and offline, reprimand on a graduated basis.
and whose responsibility is to disburse the funds to the 7,500 jurisdictions, less or more. This could lower the states costs
for administering each states own taxes collections versus one location doing it for them.
I am all for a Universal One – 5 rate tax based upon simple categories, dollar amount, need.
Say every transaction in USA had a flat 3.5% tax across the board. Some categories would be Untaxed like clothing.
States that did not want to Tax for purchases could opt out and NOT charge Sales Taxes as some state now don’t want to do.
They could still raise money from and control Property Taxes, Income Taxes. And they could petition the Federal Government
Special Sales Tax funding from the kitty for crises situations.
The result helping the bottom line of Offline Retailers, Simplifying the collection by both online and offline retailers. Making
Truly fairer control on and remitting of Sales Taxes and reducing the need for Use Taxes. It could bring in much more money
Quicker and Save money on figuring out sales taxes. The system would be automated electronically.
And would automatically collect from the Transaction Not the Seller nor the Buyer the Sales Tax.
Only ones that might escape are person to person cash payments but Cars are typically
Controlled by States and other big ticket items. In the end maybe Every Body would be Happy.
avalara could help this occur with each State and juridiction interfacing with a Federal Level. And each retailer, seller that uses a merchant account or e-payment system seemlessly charging and automatically remitting payments to One Authority a Federal One. The Federal Level wants it States to success and to lower the cost of doing buiness and being more completitive world wide/ This might be the Way.
It costs us well over a dollar for each dollar in out-of-state tax we collect. How likely are we to be compensated fairly for that?
My firm belief is that the various states just don’t get it. Companies have no problems with collecting taxes on out-of-state sales — it’s the huge compliance burden that they have problems with.
A bricks-and-mortar store has to collect tax based on the rules for a single set of tax jurisdictions. An out-of-state company that sells into hundreds of cities would have to comply with the rules of hundreds of sets of tax jurisdictions. You can’t force this situation into an apples-and-apples comparison.
The “Streamlined Sales Tax” initiative was for all practical purposes an exercise in reorganizing the deck chairs on the Titanic. Because they failed to identify the problem, they failed to implement a meaningful solution.
The real problem is the compliance burden of having to deal with thousands of tax jurisdictions. So here’s a suggested solution — create a single tax jurisdiction for out-of-state sales.
First, get rid of all the essentially meaningless rules for “nexus” — the state taxing authorities play with both feet over the line on these anyway. Necessary and sufficient conditions for nexus with a state would be a permanent establishment AND employees in that state, period.
A company without nexus would then be required to collect an out-of-state sales tax at a single rate, based on a single set of rules, for all sales made into all non-nexus states. This tax would be administered by a single central authority, possibly the Federal government. A company would report, for each remittance period, its total out-of-state tax base and the total amount of tax it collected, period. The central tax authority would distribute these taxes, after deducting its operating costs, to each state based on population.
[...] enact a federal solution (i.e. the Main Street Fairness Act – for more on this legislation, see here, here, and here), we’ll comply and even support that [...]
[...] from Tech & Government to chat about a U.S.-wide Internet sales tax system, as found here. I’ve been praying that it will be formally introduced into the House any day now . . . and then [...]
[...] enact a federal solution (i.e. the Main Street Fairness Act – for more on this legislation, see here, here, and here), we’ll comply and even support that [...]