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September 2, 2011

Internet Marketers – Proposed Legislation Wants to Appoint You as Tax Collector

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Proposed legislation in the U.S. Congress, if passed, will essentially make online merchants tax collectors, forcing them to collect sales taxes for all purchases. This is the latest attempt by cash-strapped states to collect sales tax revenues from online sales.

The Main Street Fairness Act (MSFA), introduced by Senator Dick Durban (D-IL), would change the current law which requires merchants to collect sales tax only when the merchant has a physical presence in the state. The effect of MSFA on online merchants, particularly small merchants, could be huge.

The Current Sales Tax War

The general rule regarding sales taxes is that merchants are required to collect sales taxes on the sale of tangible property to purchasers located within the merchant’s state. For sales to purchasers outside the merchant’s state, the merchant is required to collect sales taxes only for sales into a state where the merchant has a “nexus”, meaning a physical presence. The taxes on these sales are supposed to be paid by the purchasers in the form of use taxes, but most use tax obligations are not paid, and as a result states claim that they are losing between $21-34 billion.

Currently, Amazon.com and big box merchants such as Wal-Mart and Target are locked in a war involving whether Amazon’s affiliates should count as nexus for sales tax purposes, even though Amazon.com does not have a physical presence in the affiliates’ states.

Up to now, attempts by several states to force out-of-state merchants such as Amazon.com to collect sales taxes have been relatively unsuccessful. For example, Illinois and California passed so-called “Amazon laws” requiring out-of-state merchants to collect sales taxes if they employed marketing affiliates located in Illinois and California. Amazon.com retaliated by shutting down its affiliate program in Illinois and California, just as Amazon.com had done previously when Hawaii, North Carolina and Rhode Island passed similar legislation.

After these shut downs by Amazon.com, it’s been reported that Wal-Mart and other big box merchants added fuel to the fire by offering to work with the terminated Amazon affiliates.

The Main Street Fairness Act

The introduction of MSFA is the most recent attempt to bring the U.S. Government into the war, but in a different way that does not involve nexus (a physical presence). Under MSFA, a participating state would be able to require the collection of sales tax by remote merchants that do not have a nexus in their state.

It’s important to note that MSFA makes no mention of nexus. Under MSFA nexus in no longer a consideration. Instead, to take advantage of MSFA, a state must have adopted the Streamlined Sales and Use Tax Agreement (SSUTA) and passed implementing legislation. In part, SSUTA requires states to follow uniform practices, including uniform product definitions, uniform sales tax filing requirements, uniform collection through the same office, an uniform registration of merchants through a centralized multistate filing system. At present, 24 states have implemented SSUTA.

What are the benefits of MSFA? The huge beneficiaries are participating states in terms of increased tax revenues collected by merchants. Estimates of “lost” tax revenues for all states combined generally fall in the range of $21-34 billion.

Are there any benefits for online merchants and consumers? Dick Durban’s website claims that MSFA:

* does not create a new tax, but provides a necessary tool to collect an existing tax in a simple and fair manner;

* releases consumers from tax remittance obligation;

* treats all merchants with equal sales tax collection responsibilities; and

* reduces collection costs and provides compensation for all sellers required to collect sales taxes.

Somewhat surprisingly, Amazon has reportedly come out in favor of MSFA. Apparently, Amazon’s opposition to the prior “Amazon laws” was based on Amazon’s belief that these laws would make it more difficult to report and collect sales taxes. Under MSFA, Amazon believes that the playing field has been leveled.

What about start-up and small online merchants? Will they conclude that tax collection is really not worth the administrative hassle? One key provision of MSFA is an exemption for small sellers. The catch is that Durban’s bill doesn’t define “small”, so we don’t know at this time the scope of the exclusion.

Conclusion

If MSFA passes, the big winners will be the state taxing authorities with increased tax revenues.

Large online merchants such as Amazon.com will not be losers because they have the administrative resources to collect and pay the taxes with the new uniform rules.

Will small online merchants be losers by having to deal with the hassle and expense of the additional administrative burdens? The answer depends on how the “small” exemption is defined. If you’re a small online merchant, you should pay close attention to MSFA. Better yet, contact your U.S. Senators and express your concerns.


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2 Responses to “Internet Marketers – Proposed Legislation Wants to Appoint You as Tax Collector

    avatar Sten Wilson says:

    The Main Street Fairness Act will assist many businesses of all sizes to realize unknown profits making them more competitive. I am a small business owner in NY State. The online component of business is in its infancy. After examining possible avenues of growth I was immediately stone walled by the tremendous burden of tax collection and remittance in my own state as well neighboring states. I said to myself “there has to be a better way!” So I turned to the Internet.

    There is a FREE and simple solution: TaxCloud (http://taxcloud.net).

    The statements by large Internet merchants and others continue to confuse me. My company now utilizes a PayPal checkout button that works with TaxCloud’s service so my business (with less than $50k in annual sales) already calculates, collects and remits sales tax for any jurisdiction in any state. It is simpler in most cases for my business to calculate and remit sales tax than to deal with shipping. TaxCloud is available to any business FREE of charge.

    If my business can manage to collect legally due sales tax simplifying my customers lives, why is it so hard for Ebay, Overstock and their affiliates?

    Technology available freely on the Internet (like TaxCloud) is more than capable of seamlessly handling sales tax calculation and remittance. Sorry everyone, the “too burdensome” argument carried merit in 1967 and in 1992 (when SCOTUS last ruled on this matter), but in the era of modern computing where Ebay maintains a dominant position, multi-jurisdictional sales tax calculation and remittance is easily accomplished.

    So what is the real reason Ebay and other companies choose to evade supporting our schools, hospitals, infrastructure, libraries, parks and so much more by refusing to easily collect and remit sales tax legally due?

    It is clear that the real burden of sales tax falls upon the consumer, and there is no burden to business of any size. Any business can easily calculate, collect and remit sales tax legally due utilizing modern technology while simultaneously realizing greater efficiencies and profit. Consumers truly benefit by eliminating the burden of tracking and remitting sales tax due on Internet purchases. The MSFA is proper legislation enabling states rights to collect sales tax legally due.

    Unrealized to most consumers are the true costs of permitting and embracing the illegal practice of tax evasion. This year Connecticut enacted the largest tax increase in it’s history. The increase included eliminating clothing exemptions, raising the sales tax rate %.35, %1 on all luxury goods over $1000 and tax on alcohol went up %20. CT is not alone. West Virginia now taxes groceries to make up for lost sales tax revenues due the ever increasing convenience of online shopping. Rhode Island as well as doubled, that’s right a %100 increase, on all park entry and parking fees. Property taxes in states such as NY have increasing at an alarming rate to maintain funding primarily for education. Illinois favors repealing the death tax in favor of being enabled to collect sales tax legally due. West Virginia states it would like to abolish tax on groceries as well.

    Thank you so much for the share…Already we are still in the crisis and trying to get out of it and upon that this announcement. Lets hope for the best..

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