Internet sales tax to be discussed in committee

Internet sales tax

Internet sales tax

The Marketplace Fairness Act (MFA) will inch ever so slightly closer to debate in the House when a special committee holds its upcoming hearing on Internet sales tax issues.

Representative Jason Chaffetz (R-Utah)

Representative Jason Chaffetz (R-Utah)

“Exploring Alternative Solutions on the Internet Sales Tax Issue” is scheduled for the House Judiciary Committee at 10:30 a.m. on March 4, 2014. Jason Chaffetz, a republican representative of Utah, will explore the concepts laid out by House Judiciary Committee Chairman Bob Goodlatte (R-Va.) last September. Chaffetz’s goal for this hearing is to examine Goodlatte’s guidelines and look at ways to refine the MFA legislation’s wording (H.R. 684 and S. 743) to address opponents’ concerns and not to make any changes to the current bill at this time.

Goodlatte outlined seven basic principles that need to be attended to before interstate sales tax becomes practical:

1)      Online retailers should not face new or discriminatory taxes that brick and mortar retailers or not faced with.

2)      The burden of sales tax compliance should be equal – not easier nor more difficult – for online retailers versus brick and mortar retailers.

3)      Out of state retailers should have equal access to protest unfair or discriminatory regulations.

4)      State governments should simplify tax laws so as not to shift an onerous burden onto businesses and make compliance inexpensive and reliable, even for small businesses.

5)      States should keep sales taxes low and compete with one another so as not to disadvantage American retailers to foreign competition.

6)      States should be sovereign and not be subject to federal compliance burdens.

7)      Customer data must be private and protected.

Various factions, both pro and con on the MFA, have responded positively to Goodlatte’s principles.

The MFA seems unlikely to be brought before the House prior to this year’s midterm elections but may gain traction in the next congress if arguments against the legislation can be addressed.

Read more at Bloomberg BNA

Congress may find common ground over sales taxes

sales taxes

sales taxes

Marketplace-Fairness-Act

On Oct. 1, 2013, the United States reached its borrowing limit and the government shut down. This left many business owners scratching their heads. After all, it’s one thing to see a local business shut its doors when it can’t afford to go further into debt. It’s tough to imagine the same thing happening with the federal government.

Of course, these are the crazy times we live in. While the government shutdown has been resolved for the time being, it’s important to understand what happened because it could easily happen again.

The basics of the government shutdown

In order to keep government running, Congress needs to authorize the borrowing of money. When government borrowing reached Congress’ arbitrarily imposed debt ceiling the government had to stop writing checks. In order to get things running again Congress needed to pass a bill allowing the debt ceiling to be raised. The debt ceiling has been reached before.  In 2011 and again earlier this year Congress was able to come to a consensus and raise the limit in the nick of time.

This time bipartisan bickering caused  total political gridlock. Republicans refused to raise the debt ceiling in protest against spending in general and the Affordable Care Act (ACA), President Obama’s landmark healthcare bill, specifically. Both sides refused to blink and government ran out of money for nearly two weeks until both the House and Senate finally passed an agreement and reopened for business on Oct. 17.

What exactly shut down?

The government shutdown affected the country nearly immediately. Thousands of government employees had to stop working which meant many agencies couldn’t function as normal. National parks closed down, government medical research was temporarily suspended, and the Food and Drug Administration had to limit its safety testing. Some governmental agencies were able to remain open. The military, post office, air traffic control, and Social Security were among the essential programs that continued to operate.

More than just a big nuisance, the shutdown hurt the economy at a time when its recovery is anything but assured.

The shutdown’s impact on taxes

With the government closing down many key services, more than a few optimistic Americans wondered if that meant they could stop paying income and corporate taxes. After all, why pay for something that wasn’t working? Wouldn’t that be nice? But Washington makes sure it gets its tax revenues even if the government wasn’t open to spend it.

During the shutdown state and local governments continued to operate as normal so in terms of sales taxes the shutdown had little impact. Sales taxes are controlled at the state level and don’t currently have any connection to the federal government. This could all change rapidly if the federal Marketplace Fairness Act passes into law.

Will sales tax collection bring the parties together?

While Republicans and Democrats usually take opposite stances on most issues, there’s been an interesting degree of bipartisanship when it comes to the collection of sales taxes. Many in congress have been working to pass regulations that would standardize the collection of sales taxes while vastly increasing the types of transactions subject to sales tax across the entire country.

The Marketplace Fairness Act (MFA), a bill designed to force retailers to collect sales taxes on out-of-state sales, passed handily through the Democrat-lead Senate. It is currently before the Republican-controlled  House where many have speculated it will be defeated because Conservative dogma generally opposes strict new government regulation.

I do not believe the death of the MFA is a foregone conclusion however if you take a look at which states have signed up to take part in the Streamlined Sales and Use Tax Agreement (SSUTA).  The SSUTA aims to define and standardize tax terminology and the taxability of many items and services. It is possible that the MFA would force the adoption of the SSUTA on all states should it become law.

The SSUTA has been implemented by no fewer than 24 states currently and covers nearly one-third of the U.S. population. Twenty one of the 24 states are “red” states. In fact, if you look at the political affiliation of these states’ Representatives in the U.S. House there are 104 Republicans to just 52 Democrats while there is just about a perfect 50/50 split in the Senator’s parties.

SSUTA state sales taxes rates

Twenty-one of the 24 Streamlined Sales and Use Tax Agreement-participating states are considered red states with Republican U.S. House Representatives outnumbering Democrats two to one.

This seems like an odd disconnect but maybe the weary American public can find some measure of relief in the fact that Congress can actually agree on something – even if all they have in common is the lust for more sales tax revenue.

What happens next?

So now that the government shutdown is over, can we all relax? Of course not. While the government finally came to an agreement, it was a short-term deal and only funds operations until mid-January. If Congress doesn’t come to another deal by then we’ll likely be in for worse troubles.

In the meantime, make sure to stay compliant with your sales tax collections because even though Congress is a mess, your business still needs to keep its act together. If only the government held itself to the same standard that it holds taxpayers.

Anti-tax group says internet tax bill could cost businesses thousands

internet tax bill

internet tax bill

internet tax bill

As Congress continues to debate the Marketplace Fairness Act, opponents and supporters of the internet tax bill continue to release new information for their causes. An anti-tax group, the True Simplification of Taxes, just released a study saying this new law could cost businesses thousands in extra startup and administration costs.

This law would require online businesses to install new software to track sales for tax purposes. While states would provide the software for free, businesses would be responsible for setting up the software as well as paying fees and auditing expenses throughout the year.

This study looked at the cost estimates for medium sized businesses, those with internet sales between $5 million and $50 million a year. The study estimated that these businesses would need to pay somewhere between $60,000 and $260,000 in extra costs each year. The authors of this study said that they thought state governments should compensate businesses for these costs as well.

Supporters of the MFA said that this study overstates costs and is merely a smokescreen for online businesses that have gotten used to not collecting sales taxes.

Read more at PC World

Amazon’s vested interest in universal online sales tax

universal online sales tax

universal online sales tax

Marketplace-Fairness-Act
With the addition of a new Amazon distribution center in Kenosha, WI, the number one largest online retailer will soon be collecting sales tax from almost 50% of the American population.

Amazon will begin collecting Wisconsin sales taxes on Nov. 1 and the state expects to benefit to the tune of $30 million per year.

universal online sales tax

Beginning Nov. 1st, Wisconsin will become the 14th state Amazon collects sales tax for. The mega-retailer has arrangements to add at least 6 more states to that list over the next 3 years.

Amazon currently has nexus is 18 states. Nexus, a physical in-state business presence, has long been the determining factor behind which businesses have to collect sales tax. Nexus is created by brick and mortar stores, distribution centers or warehouses, call centers,  offices, sales people, and sometimes just by sending an employee to a convention.

The mega-retailer already collects sales taxes in Arizona, California, Georgia, Kansas, Kentucky, New Jersey, New York, North Dakota, Pennsylvania, Texas, Virginia, Washington and West Virginia. Amazon has a physical presence in all of those states except for Georgia and New York.

Georgia passed a law in January requiring all online retailers doing business within the state to collect sales taxes and Amazon complied starting last September. New York won a court appeal upholding the state’s right to claim nexus is created when an out-of-state retailer pays in-state affiliates a commission to promote their products or services. New York refers to this as “click-through nexus”.

Amazon shut down its Connecticut affiliate program back in 2011 to avoid click-through nexus in that state but may be thinking about restarting the program as it recently announced that it will begin to collect Connecticut sales taxes and invest $50 million over the next two years for a jobs initiative.

Amazon has distribution centers in New Hampshire and Delaware where neither state has a sales tax. It also has centers in Indiana, Massachusetts and Nevada and has agreed to begin collecting sales tax in these states in the near future.

Amazon has acknowledged that it has nexus in Tennessee and South Carolina, but made special deals with those states which allow it to postpone sales tax collections for a time. Tennessee Gov. Haslam agreed to hold off on an Amazon tax until 2014 if the retailer agreed to send notifications to all customers about how much tax they owed on their purchases going back through 2012. South Carolina made a deal that exempts the company until 2016 in return for a promised distribution center and its 1,200 jobs. The state left itself an escape clause saying the agreement would be nullified should the Marketplace Fairness Act pass and create a standardized set of federal regulations.

This patchwork of regulations, state-by-state agreements and endless legal battles seems to be the main impetus behind Amazon’s support for the Marketplace Fairness Act or universal online sales tax. This law would significantly ease Amazon’s burdens while simultaneously increasing the burden on other smaller online retailers. Amazon stands to significantly widen its lead over the competition.

Will the Marketplace Fairness Act simplify sales tax regulations?

sales tax regulations

sales tax regulations

Marketplace Fairness Act Header

History suggests think again

Congress is currently debating the Marketplace Fairness Act which in theory will create a standard set of rules for online retailers to collect sales taxes. Right now, laws are different in each state which makes compliance confusing and difficult, congress is hoping that the Marketplace Fairness Act will simplify sales tax regulations.

Supporters of the Marketplace Fairness Act say this bill will create a level playing field for retailers across the nation. Sound almost too good to be true? It very well could be considering the lack of impact we’ve seen from the similar Streamlined Sales And Use Tax Agreement.

sales tax regulations

Will the Marketplace Fairness Act simplify sales tax collection as stated in its reason for existing?

What is the Streamlined Sales & Use Tax Agreement?

The SSUTA is an agreement that tried to create a standardized set of sales tax laws across multiple states. It was designed to make it easier for companies operating in different states to stay complaint. The SSUTA also tries to encourage online retailers to follow the same sales tax laws as brick and mortar businesses to supposedly make things more fair. Where have we heard that before? The SSUTA has many of the key goals of the Marketplace Fairness Act. The big difference is that the SSUTA was only approved by certain states whereas the Marketplace Fairness Act is a federal bill on the national level.

Where the SSUTA ran into problems

So what happened with the SSUTA? Well, while the crafters of this agreement wanted it to go national, they ran into participation issues. Forty four states helped put together the legislation for this bill which was a promising start. However, only 24 of these states actually passed the legislation to make the act state law. That means just 33% of the U.S. population resides within a SSUTA state. What’s even more problematic is that none of the six largest states, for various reasons, are part of this group.

As a single example of how complex this  lack of coordination could end up being, New York is embroiled in a long standing legal issue  over the laws for defining nexus. Nexus is the way state governments determine whether a business has enough of a presence within the state where it needs to register and collect sales taxes. In the past, this was based on whether or not the company had a physical location in the state. Now that we live in the digital age, state governments have broadened the nexus definition and this is where things can get messy.

While the SSUTA has a set of rules defining nexus, the New York legislature still has the freedom to make its own rules. One controversial law in New York says that just getting a click-through referral from an affiliate in the state is enough to create nexus. In other words, if a New York-based company with a web site accepts a fee to refer a customer to Amazon, Amazon in theory would need to collect New York taxes on the sale.

This is both extremely difficult to track and very different than what other states have agreed to. Amazon and other online retailers are challenging this law with the Supreme Court.

Will history repeat itself?

So the SSUTA, which has been under development for no less than a decade, hasn’t even gained acceptance by half of the country. As it is currently written, the nation-wide Marketplace Fairness Act is obviously going to have a difficult time clawing its way through opposing forces in Congress. The MFA is geared toward enforcing out-of-state sales tax collection for states participating in the SSUTA and gives non-participatory states the ability to opt out of the agreement. As a result, this bill is more of a guideline than a federal law and stands to make sales taxes more complicated rather than less.

We’re still a ways away from seeing the Marketplace Fairness Act enacted. The House has time to make changes and they probably will. Whatever happens going forward, it’ll be worth watching to see if Congress makes participation mandatory. Otherwise the MFA could turn into another toothless tiger.

 

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