Amazon: a good start on sales tax – but only a start

I am bumping up this post and associated comment thread from a couple of months ago in light of Jeff Jacoby's column today, published because apparently a bill that would expand states' authority to collect sales tax from internet retailers is heading for the Senate floor.

The best argument against the bill, IMHO, is that compliance would be difficult and expensive, given the numerous rules applicable to different taxing jurisdictions, and would therefore advantage mega-retailers like Amazon over smaller online operations (the bill exempts retailers with annual sales below $1 million). See the excellent commentary by BMGer power-wheels in the thread below for more on that. I propose the following fix: a retailer has a choice of (a) complying with local requirements, or (b) collecting a "safe harbor" tax of, say, 3% (lower than most sales taxes) on any order shipped to a location that charges sales tax (they still wouldn't have to collect for, say, New Hampshire, which has no sales tax). That, it seems to me, would solve the compliance problem while going a long way toward addressing the unfairness to brick-and-mortar merchants that the explosion in online sales has created. Discuss. - promoted by david

So Amazon, after lengthy negotiations, has finally agreed that it will collect and remit sales tax on items shipped to Massachusetts customers beginning late next year.  It has long been established that if a retailer maintains a “physical presence” in a state, it may be required to collect that state’s sales tax, and Amazon now has a couple of facilities in Massachusetts, possibly with more on the way.

The bigger question here, of course, is whether the “physical presence” test makes any sense in this age of online retailing.  The test derives from a slew of confusing and at times contradictory Supreme Court cases going back well over half a century that attempted to deal, first, with traveling salesmen, then with the question of transporting goods made out-of-state, then with mail-order businesses, and most recently (1992) with the dramatic increase in mail-order businesses over the last time the Court had faced the issue (1967).  Through that morass of cases has emerged the following “bright-line rule”: there is

a safe harbor for vendors “whose only connection with customers in the [taxing] State is by common carrier or the United States mail.” …[S]uch vendors are free from state imposed duties to collect sales and use taxes.

The basis of that rule is the so-called “dormant Commerce Clause,” that is, the judge-made rule that the Commerce Clause not only authorizes Congress to regulate interstate commerce, but also by negative implication disables states from burdening it.

Now, of course, online retailing has created a new “connection with customers” that none of the previous cases could have foreseen.  Unlike mail-order houses, which targeted customers by mailing catalogues to some residents of a state, an online retailer makes its entire inventory readily available to every resident of a state that has access to the internet.

I would not be embarrassed to argue in court that, despite the “bright-line rule” of current Supreme Court cases, an online retailer with no “physical presence” in a state but with a website to which virtually every resident of a state has access may constitutionally be compelled to collect and remit sales tax on purchases made by that state’s residents.  And perhaps Massachusetts or some other state will bring that case against Amazon or some other online retailer.

But the much better solution is for Congress to solve this problem once and for all by authorizing states to collect sales tax on online purchases.  The dormant Commerce Clause cases are unusual in that they are both constitutional (as opposed to statutory) but also subject to congressional revision.  As the Supreme Court has noted,

No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions…. Congress is now free to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes.

The proliferation of online retailers like Amazon has created a real problem for states.  Many billions of dollars of sales transactions are now conducted in a manner that was inconceivable only a few years ago, and because of a legal doctrine that has failed to keep up with advances in technology, they are conducted free of sales tax, costing states a staggering amount of money.  Of course, the online exemption from sales tax has also proven extremely troublesome for “brick and mortar” retailers, who, because they must collect sales tax, are in effect selling the same products for more money – rarely a winning competitive strategy.  Congress could solve this problem simply by giving states permission to do what they have always done: apply their sales tax to stuff that their residents buy.  It’s high time Congress did so.

Recommended by somervilletom, liveandletlive.



Discuss

109 Comments . Leave a comment below.
  1. Two thoughts:

    The first deals with the here-and-now:

    How do I calculate my use tax? This continues to be a pain in the neck. I’ve got to track every single online purchase [I buy virtually nothing physically out of state], and then determine (i) if I paid sales tax on it, and if not, (ii) if it is otherwise exempt because it’s food, diapers, used, whatever. And… will the safe-harbor use tax calculation now come up with a slightly lower number to account for the “average taxpayer”‘s Amazon purchases?

    The second deals with long run:
    Ladies and gentlemen, the “tangled web of sales tax regulations” is no biggie. Sure, you’ve got state, county, city, each with its myriad of exceptions. Here’s the thing: a or a few companies will emerge as b2b merchants who will both track all the current and ever changing legislation, and calculate the sales tax for the merchant. It will be a small cost to the merchant, but such is the cost of regulation I suppose. To reiterate: a SCOTUS or COTUS decision to make all sales tax for all Internet purchases will not be a major burden for mom and pop sales because one or more b2b businesses will pop up, track all the regulation, and do the calculation on behalf of the moms and pops for a small fee, just like credit cards charge a small fee, processing checks is a small fee, etc. etc.

    • This will kill small & Medium Size businesses

      Each state (as it now works) will require a minimum payment typically $500.00 and then typically income tax returns must be filed in each state – Amazon will love it – it will kill all of the other small businesses.

      • Wolf! Wolf! Wolf!

        Jeesh, if “small & medium size businesses” were so endangered, they would already be dead. You raise this canard about every proposed tax — while our government becomes more and more dysfunctional because politicians who adhere to this nonsense are strangling it.

        We are talking about sales tax. It isn’t that big a deal, it’s no harder to compute and pay than shipping charges. Meanwhile, brick-and-mortar retailers — including an enormous number of “small & medium size businesses” — are being creamed by what amounts to a government subsidy of their online competitors.

        Oh, and speaking of shipping charges, does anyone really think those are anything other than another profit center for online merchants? I strongly suspect that once sales taxes are collected from online merchants, we’ll see those “shipping charges” mysteriously begin to shrink.

        Crying “wolf” only weakens whatever case you’re trying to make. If we’re going to have a discussion, let’s please stay focused on real issues.

        • How about some proof?

          Tom, in 10 minutes or less, can you tell me where I would have to remit sales tax on the sale of a $50 pair of Nike sneakers (used) sold to someone in Birmingham, Alabama? Can you also tell me the steps that I’d need to take to remit it? Forms to fill out and where to get them?

          I think your assertion that it is no harder to compute and pay than shipping charges is the more outlandish claim.

          By the way, a 3lb package mailed from Springfield to Birmingham will cost me $8.54, and I would pay that to the post office where I drop the package off, or I could also print that online and leave the package outside my mailbox where the postman would pick it up.

          • What do you pay now?

            I think your exposure when you sell your Nike shoes to someone in Birmingham, Alabama using mail order or the phone is no different from the web. I doubt it will take long for eBay to provide a solution.

            Many online merchants who pay $8.54 for shipping charges collect $15-20 for “handling charges” for those items.

            Finally, it seems to me that the very worst case is that you decide it’s too much hassle to sell your used sneakers in Alabama — and your prospective customer buys them from a neighbor’s small business instead. You haven’t shown at all how collecting this tax harms small businesses.

            In any case, I don’t see that burden is on me to provide “proof” — the assertion I’m responding to is that collecting these sales taxes will “kill all of the other small businesses.” If you think this is so, I think the burden of proof is on you to persuade the rest of us.

          • How do you deal with purchasers in the same state now?

            If you are a small business in MA selling stuff via mail order or online then you are already legally obligated to collect MA sales taxes. So what do you do in that situation? Or do you just refuse to sell to anyone in the same state?

            A complete list of sales tax rates and addresses of the corresponding taxing authorities would fit in a pretty small database. There are companies that provide access to such databases for a fee, but it would not be hard to maintain a free database with a small number of volunteers. The reason that hasn’t been done is that currently only large vendors with presence in many states currently need to worry about this. Furthermore, you could expect that services like EBay and PayPal would have to provide sales tax collection services to compete with each other. I really don’t think this would be a very big deal in the long run.

            • The difference

              If I’m a small business in MA I pay sales tax based on my physical store location. One set of rules, not 15,000 sets of rules. If I don’t like the tax policy of a particular locale, I don’t put a store there. With internet sales, the taxes are based on the buyer.

              It is a complete cop-out to claim that a vendor would start up to solve the onerous burden placed on the small business. How about we make a law that says that local cities and towns can charge you for driving on their roads, and it is up to you to pay, or you get fined. That doesn’t sound onerous if you just assume that a magic business unicorn fairy will come along and make it all better, right?

              • Cop out or not - that is what will happen

                The fact is that, where there is an obvious business need, you can bet business will jump in to fill it. There is plenty of evidence of that happening in the past. Although there are many tax jursidictions (I think there are more like 7000 than 15000), and too many for any one person to keep up with, that number can still easily fit in a small database that would fit on most people’s smart phones. This is not rocket science and in fact there are already exist a number of small companies that provide such a service. Higher demand for such services will spur competition and better prices and services. However, I would hope that the Federal Government would provide this service.

                Besides which, we don’t necessarily have to start out forcing you to pay taxes in jursidictions smaller than the state level.

                You know in Europe vendors manage to deal with vastly more complicated VAT schemes, and seem to do manage ok, so clearly it is possible to make this work.

                • I tend to agree.

                  It’s nearly impossible to imagine that, should states be authorized to collect sales tax from all online sales, we won’t see the tech community rushing to supply retailers with software that will make this much easier than it would have been in the past. Indeed, the fact that in the catalogue/mail-order era nationwide compliance would have been a huge challenge may have figured into the Court’s decisions; now, of course, compliance will be much easier than in the past.

                  • It is amusing how

                    in this particular context, large corporations magically transform from parasitic evil monster to a magic solution to problems.

                    I guess in this way, corporations are quite similar to the filibuster.

                    • Straw man

                      It is not controversial that corporations know how to generate tools, like the software David suggested, for the efficient running of their businesses. See ADP, which handles paycheck withholding for employers from sea to shining sea and beyond.

                      That does not mean they should be able to: write the laws intended to regulate them, contribute directly to political campaigns without limit, pay their workers substandard wages, violate our labor laws, provide a dangerous work environment, pollute the air and water, or weasel their way out of tax liability and get a deduction for moving decent jobs overseas.

                      Corporations should be free to do their thing, subject to laws and regulations that promote the common welfare. And when debating a particular public policy we should be free to discuss what is, and what is not, a valid logistical hurdle.

    • I don't buy that

      If I sell a $50 pair of sneakers to someone living in Birmingham AL, can you tell me how much sales tax I should remit, and precisely who and how to remit it?

      I’m betting that you won’t be able to figure this out in 15 minutes. You have to know precise taxation laws for every address in the country and for every item sold. Birmingham, if I’m not mistaken, has city, county, and state sales tax. That’s three remittances for that purchase. I have no idea about the rules of a pair of sneakers – they may depend on the original sale price, the current sale price, whether it is new or used, or who knows?

      No B-2-B site exists yet to do this, even though this is a 15-year old problem. It is foolhardy to throw this kind of regulation up with the hopes that “the market will rise to fix it”.

      I have no problem with an online business having to remit sales tax, but it should not be onerous to do so, nor should I have to rely on a private company and pay a fee to pay my taxes. That kind of burden will be borne by small businesses, not Amazon (who apparently now has the ability to do this, and knows that a change in the law will be a competitive advantage for them by making it hard for small online businesses).

      How about making this a governmental function?

      • How about the government calculate my taxes too?

        It won’t kill small businesses. No way. The reason a b2b business hasn’t developed yet is because there is no market to do so. The mom and pops don’t have footprints in more than 1 state, and therefore don’t need this.

        As soon as the law is introduced, there’ll be dozens of services popping up to do exactly this — some will be classic “Internet” startups, made up of code monkies and newly degree-d accountant junkies. Others will be the folks who build back end POS systems now, as mom and pops don’t typically build their own e-commerce front or back ends. Still others will come from folks like intuit. The ones that survive will be the ones with low cost of service and low cost of integration, and there will be more than one.

        This problem is classic Internet b2b. Very burdensome for an individual business, but it scales perfectly — huge fixed cost, virtually no variable cost to serve another customer. It’s a classic b2b Internet problem, and it will be solved very quickly, as the number of transactions daily on the Internet is so large that merely taking a 0.1% take on each one would be a fortune… and substantially less than MasterCard or Visa’s take, not to mention UPS or FedEx.

        • in the private sector yes - public no

          the states/cities and counties will all demand minimum payments – the only businesses to survive will be the large ones.

          Already Rhode Island is demanding my payroll records because I sold something there – each state will want it’s piece of the pie.

          • Different issue

            I fail to see the connection between sales taxes and anything related to payroll. If some entities are demanding minimum payments, those minimum payments are surely not limited to online merchants — if anything, putting online merchants on the same footing as brick-and-mortar outlets will increase pressure against such things.

            Can you offer a link to a specific state, city, or county that charges (or threatens to charge) a minimum sales tax?

        • Not good fit for private business

          Isn’t “huge fixed cost, virtually no variable cost to serve another customer” better performed by government? Because it sounds like the very kind of business that spawns monopolies/oligopolies, like a cable company or telephone network – or even MC/Visa.

          Remember when MC used to charge a big fixed cost for their services? Businesses got around that by only taking cash, and they can still fall back on that to avoid MC fees. Imagine what MC would do if the government mandates that all merchant payments must be done via a credit card. This would give MC the leverage to increase their rates tenfold.

          The government should not create such a substantial and universal burden and ignore its effect by saying “private companies will rise to the task”.

      • Well

        Not true that the market will not provide a service to calculate this– doubtless Amazon or ebay would be quite pleased to do so, if you sell your Nikes through them.

        The problem will be that the paperwork will be sufficiently intense that there will not be much alternative to using a big company, which is why established companies generally embrace regulation such as this, but only after they are established.

        • Except it would incentivise...

          … the creation of ‘lot’s of paperwork’ services.

          How many small businesses hire an accountant firm?

          • Well, yeah

            I guess I should have been clearer about my instense skepticism of this proposal. Small businesses don’t have access to paperwork-intensive accounting, and so would be forced to turn to companies with the resources to do it– ebay and Amazon, for a price.

            This would be like tax farming to Amazon.

      • Please ...

        You (and anybody else) can do what I just did — go to Google and find out. It took me about a minute to find an online site for the State of Alamaba and another for the City of Birmingham.

        I fear you greatly overstate the hassle of this.

        • What are the rules?

          So you’ve alluded that this is easy several times, but have yet to answer the question. What are the rules selling Nike sneakers for $50 to someone in Birmingham? What forms must be used, and where should the payments be sent?

          Now multiply that by The 15,000 tax jurisdictions in the USA. See the problem?

          I don’t buy your argument that “some other small business will fill the need”. It is more likely that a large business will.

          • I dunno - it seems to me...

            … that if I designed a cash register with a database of tax data based on zip-code that updates from my servers over the internet, I could sell them across the country for .05% of sales plus hardware costs and make a killing.

            My only point here is that this creates a new demand for a service that is very ‘doable’.

  2. Perhaps there should be a fixed internet sales tax rate nation wide

    The problem with doing it state by state is that this might create the incentive for people to start setting up billing addresses in states without sales taxes. Perhaps there could be a simple fixed 5% sales tax on all internet sales with the proceeds going to the state of the billing address. That might be more/less than some states normally collect but every state would then get an equal cut of the business.

    • Tax is based on where you live

      Or, more accurately, it’s the *shipping address* that is used to calculate the tax, not the billing address. If you’re willing to have your items actually shipped to a different state and then go through the hassles of getting them to you, then yes you could cheat on taxes that way, but I’m sure there are more convenient and cheaper ways to save a bit of money on your purchases (note the irony: it may cost you more to re-ship the item or drive and get it, than the tax you saved by shipping it to another state in the first place). Some of those ways are even legal!

  3. I'm missing the difficulty here.

    There are already order forms that say add x if you live in___. I’ve also done retail shipping and as alluded to if we have a physical presence you need to collect sales tax. A couple of people on this thread are making it sound like a huge burden to fill out an additional line or do one additional calculation. Since physical presence is already a criterion all this is saying is pretend you have physical presence in MA.

    • Taxes remitted to buyer's locale

      The difficulty is that sales tax needs to be collected based on the rules of the address of the buyer. Let’s say that you’re selling bookcases on the internet. You can maybe sell 2,000 of them in a year. It’s likely that you’ll sell to 2,000 different people. You’ll need to research the tax laws in each of their locations. Now you’ll have to submit the sales taxes monthly, to about 80 jurisdictions per month. I don’t know if any localities require estimated taxes to be paid. Remember that some places collect city, county,and state sales taxes.

      It gets worse if you’re selling higher volume, lower priority items. What if you can sell 50,000 different items in a year, maybe to 10,000 different addresses. That isn’t scalable.

      These sales aren’t all going through eBay either. I buy plenty online from merchant sites. The Internet has been great for these people, they can offer a product for very low costs. Online shopping carts are the only startup costs they have.

      Using a third party would be very risky. Imagine the third party goes belly up without remitting your payments? You’d be screwed.

      Best case is a national rate with national rules. Second best case is a government solution which is nearly free. It is ludicrous to justify a painful government policy on a theory that a private solution will spring up.

  4. To hrs-kevin regarding billing address.

    My understanding is that sales is a consumption and use tax. Therefore it seems the ship-to address should determine the sales tax.

  5. I think most here are vastly underestimating the complexity involved

    Multistate sales and use taxes are extremely complex. There are many issues involved, and they vary greatly from state to state. Some examples – what is the tax base? Might seem obvious, but what if the sales price includes shipping? Installation? Customization? A warranty? The answers vary state to state. And is the sale even subject to sales tax? Sales to certain entities might be exempt – Quasi-governmental entities? Nonprofit entities? Public utilities? Private utilities? Again, the answers vary state to state. What if its a sale of bibles? Exempt in certain states. Sales of food are exempt in a lot, but not all states. And what about seeds that will be used for growing food? It depends on the state. Several states are not excluding candy from the food exemption. But what about marshmallows? Chocolate energy bars? Semi-sweet cooking morsels? Again, the answers will vary state to state. And some states might not even provide adequate guidance to determine if an item is taxable. A lot of states exempt manufacturing equipment. But how do you know if the buyer will use the equipment in its manufacturing? Is a temperature control unit used in manufacturing if it merely keeps the manufacturing facility at a comfortable temperature? Answer varies state to state. What if the product being manufactured needs to be processed at exactly 63.8 degrees? Is it exempt then? How would the seller know? Usually the buyer will issue the seller a manufacturing exemption certificate. But how long are those good for? And what do they cover? Can we just accept it and stop charging tax, or do we need to verify the information? The answers will vary state to state. And how do we source the sales? Its all well and good to just say “the billing address” but what about sales of software to a company that will use the software at offices in several states? It depends on the state. What if the company’s procurement department is in one state, and that’s where the billing address is, but the goods will be delivered to another state, and then the company will perform installation and warranty services in another state? Again, the answers will vary state to state. And not all states even use destination sourcing. New Mexico, Washington state, some counties in Texas, and several other jurisdictions use origin sourcing for certain items. And what about services? Where is a service sourced if most of it is performed in one state, but then it is delivered in another state? Again, it depends. And on top of all this, most states adopted their sales and use tax code in the 1940s when the economy was greatly different from today. A lot of issues arise trying to determine how outdated statutory language applies to new technology. Telecommunication services? Cloud computing services? The treatment varies state to state.

    After Quill (the 1992 Supreme Court case David mentioned above), states began a process to adopt standard rules for some of the issue above. The idea was that once states agreed on some of those issues and standardized the laws they would go to Congress and make the case for legislation like the mainstreet fairness act now being considered. The process has been long and tedious, with some progress made but a long way to go.

    All that being said, I personally support the mainstreet fairness act. Sales taxes are complicated to comply with whether you have physical presence in a jurisdiction or not, I don’t see why that should make a difference. In fact, in my many years of practicing in the state and local tax field (on both sides of the fence) I have never seen a company in full compliance with all sales and use tax laws. There is a cottage industry now with private consulting and accounting firms doing reverse audits, examining a company’s sales tax paid and determining whether they paid too much. And a lot have, I have seen some huge refunds generated through these projects.

    Regardless, the mainstreet fairness act exempts businesses with sales under a certain amount, so truly small businesses will not be affected. And it levels the playing field and creates fairness – no one does it right now and no one will do it right after the legislation.

  6. I still think I'm hearing a lot of whining.

    Certainly the information on the various taxrates in the various jurisdictions is availabile. Also plenty of businesses already have physical presence everywhere so certainly they have it figured out. In my previous retail job my register was preset to DC rates since that’s where my store was, but if I were shipping and ran it through the register it was easy for me to go to the tax menu and choose a different jurisdiction for that one transaction. They were already programmed in and sure, that programming has to be done, but I really don’t think anyone is calling for a reinvention of the wheel.

    • Lots of theory, no practicality

      Christopher, can you point me to a place where I can find the information on the 15,000 different sales tax jurisdictions? A simple link will suffice. According to everyone here, this is as easy as buying a stamp. So where is the link to this information? Surely someone must offer a product for this – for maybe $100 or so, right? So where is that product? Should be easy according to everyone here. No burden at all to send out up to 15,000 different sales tax remittances. A typical mom-and-pop should be able to bang that out in, what, two months? The fact that they may have to do it monthly isn’t that big a deal, right?

      I am absolutely stunned that people are being so cavalier about this, and are basically welcoming a large monopolistic company to come in and “make millions” from providing a government-mandated service. I honestly think I’m starting to see what the Tea Party was complaining about – the government leaning on small businesses and enriching a monopoly in the process. Wow. Just wow.

      • If he can't point to one now, can...

        … you prove it won’t exist in the future? I’d bank that it’s existence would be all but inevitable if there were sufficient demand. Given the volume of interstate commerce, I suspect there will be plenty of demand.

      • Who said anything about a monopoly?

        Why wouldn’t the market work in the ordinary way here? If government action creates a lucrative new market, why wouldn’t scads of companies rush in to fill it? Plus, “leaning on small businesses”? WTF – you think Amazon is a small business?

        • Amazon can do it

          Amazon will have no problem with this; they sell to everyone so it’s not a burden based on their massive volume. It’s a burden to small business because the overhead of calculating and remitting to a single jurisdiction is very high and the incremental cost of the next transaction is low. That is the kind of thing that hurts a small business.

          Hey,I can get on the bandwagon here. It would be great if every business could provide the government with the names and addresses of each customer along with an itemized list of what they bought. This shouldn’t be a burden either because Microsoft will probably develop a product and charge all businesses for it. It would be inevitable.

          • Simple solution,

            exempt small businesses, and define small not just by the number of employees, but also their gross revenue (because there are no doubt some online “small businesses” with 20 or fewer employees that still manage to rake in big $$ by virtue of what they sell).

            RyansTake   @   Thu 13 Dec 3:23 AM
  7. I am for online sales tax

    It’s already difficult for local small businesses to compete with online retailers because of the extreme cost of doing business on Main St. Not having to pay sales tax really gives the online businesses a huge advantage. We want to keep our brick and mortars around. But I can understand all of the stress being expressed here about trying to make it work with a very small online business. The costs to conform could be huge. I hope our leaders would take that into consideration and exempt smaller online retailers from having to conform.

  8. Ask and ye shall receive, nopolitician.

    Usually people are scolding ME for not spending a couple minutes on Google. Just search “state sales tax rates” and there are several sites with state rates. This site is the best I found where you can also drill down for local rates. There is this site which appears to be a product for which your business can sign up and get rates by zipcode.

  9. So much for small business

    When you pay sales tax to a state they will claim Nexus – with the requirement you pay a minimum tax return, in California it’s $800.00. Accounting fees will probably double that. You will pay income tax in that state on that item – deductible in your state – but what a mess.

    In addition to figuring out what the rates should be – you also will have to figure out if the item is taxable. Construction materials in some states are some not – some states government have to pay sales tax.

    Of course you will be subject to audits , not just by 50 states but all of the other tax entities. Since you are not a taxpayer in that location – they won’t care how they treat you.

    The states will not make it easy, lets look at trucking regulations. We follow DOT regulations for our trucks – but now the state has come up with some of their own – and we got pulled over and had to pay a fine. It’s not as if the DOT regulations miss anything – the book (not put out by the DOT but by a private company) is over 1000 pages long. The state just want to add some things – of course they won’t tell you.

    Bigger firms are easier to regulate – and if you are a regulator – you might even get a job there afterwards.

  10. Another angle in all of this

    is that requiring online retailers to collect and remit sales tax would solve the problem of virtually every online shopper being a scofflaw. As you may know, when you make an online purchase from a retailer who doesn’t collect sales tax, existing MA law actually requires you to pay “use tax” on your own – that is, you are supposed to send the amount you would have paid in sales tax, had you purchased the item in Massachusetts, to the state on your own account. Of course, nobody actually does this save for very expensive items purchased in unusual circumstances (such as automobile purchases made out of state but then registered in MA). But that’s what the law is. It’s a farce, and it should be ended.

    • It would be interesting if ...

      It would be interesting if state and local authorities required e-commerce provides to report — to each consumer and the government — online activities on some regular basis. I’m not sure that such reporting is very different from the current (and growing) requirements to deliver 1099s to suppliers.

      I wonder if an approach like this might actually be easier (politically) than going after online merchants.

      It seems a no-brainer to me that, during a time when we desperately seek tax revenue, and a time when some desperately resist ANY new taxes, that we vigorously pursue the collection of every penny of taxes that already due under current law.

      What am I missing?

      • This approach would likely be seen,

        with some validity, as a huge invasion of privacy, since it would essentially entail retailers telling the government about every online purchase you make. People would go ballistic. It would not be politically easy at all, IMHO. Just have the retailers collect the sales tax and be done with it.

        • My bad...

          I didn’t mean that each retailer would provide the information, I suppose my comment was confusingly worded.

          I meant that the bank — probably the issuing bank for whatever card is used — provides the record. The bank already has the information, the bank can aggregate the qualifying purchases, and forward the total to the consumer and/or the government. I assure you that if the government wants that information, it isn’t hard to get. After all, such records are routinely disclosed in divorce proceedings already.

          Until we in the industry find a way to provide true anonymous online cash, no online purchase will have any sort of privacy. I’m sorry, but these records are already all over the place and readily accessible to any legitimate (and many illegitimate) party.

          In processing the report, the bank can aggregate all qualifying transactions and issue a single roll-up for each account. I don’t think that tells government (or, for that matter, the consumer) anything more than the total!

    • Who you calling scofflaw?

      The tax form has a “safe-harbor amount” — if you haven’t kept careful track, you put in the safe-harbor value, a function of your income, and you are in compliance.

      My bet is that this is exactly what most people do.

  11. Whining, wolves, and wherewithal

    I hear lots of whining, several cries that the wolf is coming to eat small businesses (and no doubt children as well), and very little about the actual wherewithal we’re talking about.

    Let’s remember that we’re talking about small and medium businesses.

    First, it isn’t hard to find the relevant tax rate for a given purchase. Use the shipping or billing destination (I know, they might be different — choose one), look it up on Google (or pay a tax consultant to that for you).

    Next, just pay it. Don’t try to exploit every exemption — if you sell it, then pay a sales tax to wherever you shipped it or where the money came from. Just pay it.

    I strongly suspect that the government entities that you mail a check to will find a way to cash your check. If you are a “micro” business, so that you’ve paid a grand total of $7.18 (made-up number!) in one calendar year to the state of Alabama, the city of Birmingham, and whatever county Birmingham is in, then I sincerely doubt whether you’re going to hauled through any wringers to punish you for attempting to obey the spirit of the law.

    If you find yourself paying enough in sales taxes to make a difference, then — when you know how much of your own money you might get back — explore whether it makes sense to file for reimbursement from a particular entity. I have news for you: it probably won’t.

    If an online merchant in Massachusetts is doing enough business in Birmingham, Alabama to incur more than a lunch’s worth of improper sales & use taxes, then I’ll wager that that merchant is large enough to afford a tax consultant who can properly handle the situation. If the amount at stake isn’t worth the expense of collecting it, then let it go. It isn’t going to kill you.

    Finally, I’d like to again remind the wolf-criers among us that they haven’t spelled out how small and medium businesses as a whole are harmed by any of this. I get that life might be made more difficult for some (such as, for example, folks who sell stuff on ebay). I want to remind us that the inevitable result of that is that life will be made easier for others in response. If it becomes harder to buy sneakers from ebay, it then becomes correspondingly easier to buy your sneakers from the consignment store in a nearby town.

    The world will not end on December 21st, and the world will not end if we collectively stop subsidizing on-line merchants (at the expense of their brick-and-mortar competitors).

    • I'll make a deal...

      I have no problem paying it, as long as someone tells me how much it is and makes it easy to pay it – for a cost that is not prohibitive to a small business (i.e. a $10k/year subscription to a service is a non-starter, as is filling out and mailing one form per jurisdiction per month.)

      You still haven’t told me the rules about $50 Nike sneakers sold to someone in Birmingham. As much as you claim that it is really, really easy to figure this out, you can’t seem to actually figure it out and post it. I just want to know which jurisdictions will get part of the tax, how much it will be, what forms to fill out, and the rules surrounding sneakers (used) and whether or not they are taxable.

      • Rolling my eyes!!!

        Jeesh, you could have done this as easily as me.

        From page one of the “State Tax Rates” link of the first link I posted earlier: 4%

        Birmingham is in Jefferson County. Following the obvious links gets me to the County Detail page: 2%

        Similarly, the City of Birmingham rate is: 4%

        Adding those up, I get 10%. I cross-checked that with Best and Worst States for Sales Taxes (which was the first interesting hit on a Google search for “total sales tax birmingham”. But I suspect you knew that — is it a coincidence that you happened to pick the city with the highest total sales tax in the US?

        So I would send checks for $2.00 each to the city of Birmingham and the state of Alabama, and another check for $1.00 to Jefferson County. Surely even you can find the addresses.

        Honestly, nopolitician, just send the checks. If they want forms, they’ll ask you for them. If I had to guess, I suspect they’ll just cash them and you’ll never hear from any of them again.

        You’re making this much much harder than it is. Now here’s the really ugly part. For your hypothetical pair of used sneakers, you COULD “forget” to make the payment — they’ll ask you if they care. If they ask, you pay. Maybe they impose a 20% penalty, and you pay $6.00 instead of $5.00.

        Unless you’re selling LOTS AND LOTS of sneakers, it just doesn’t matter!

        • Wow

          So your counter to the “it’s a burden” is “break the law and the burden doesn’t exist”?

          Wow.

        • You can't just mail a check

          In most jurisdictions you have to register with the tax administration agency, you have to get a sales tax permit, and you have to pay an appliaction fee. Then you have to determine how often you need to remit the tax you collect (monthly, quarterly, annually, etc). And once registered, you have to file a return each month – even if you have no sales you will file a 0 return.

          This whole thread has gotten ridiculous. Some are complaining about the perceived burden on small business, but every version of the proposal that I’ve seen exempts small business (however defined). Others are severely underestimating the actual compliance and administrative burdens – I assure you that they are real.

          • I'm not saying they aren't real ...

            I’m saying that the example of shipping a single pair of used sneakers to Birmingham, Alabama is not illustrative of anything.

            I’m suggesting that if the business in question is large enough that significant money is at stake, then they are also large enough to handle the extra overhead.

            It isn’t illegal to just mail a check. If you’re a tiny business (or even a small business) and do so, I suggest that the recipient will either ignore you or inform you of the proper channels. You’re not going to get yourself into trouble, and most time the gesture is enough. Remember, I’m only saying this about *tiny* operations.

            I don’t dispute the need for help when the business is larger — that’s why the deity gave us professionals like you :)

            • You have spent most of the thread minimizing the compliance burdens

              Just a quick sample of some of your statements:

              We are talking about sales tax. It isn’t that big a deal, it’s no harder to compute and pay than shipping charges.

              I fear you greatly overstate the hassle of this.

              You’re making this much much harder than it is.

              You have minimized the fact that there is a high compliance burden and argued that you can somehow be in compliance with your sales tax obligations by mailing a $2 check to a governmental entity. Both the pro-Mainstreet Fairness Act and the anti-Mainstreet Fairness Act factions have spent most of this thread erecting straw men and pushing them over, with both sides completely divorced from reality.

              • I guess we disagree about "high compliance burden"

                I didn’t assert that there is NO compliance burden. Computing shipping charges is not trivial, but has been solved. I suggest that same will prove true for sales tax compliance.

                I hope we agree that “micro” merchants — folks who occasionally sell items on ebay (though surely eBay will figure this out and offer it at a some modest fee) — do not face an extraordinary burden. I hope we agree that “big business” online merchants (like Amazon) will also figure it out.

                It appears that you see the middle ground between those two extremes differently from me. I just don’t see this as some insurmountable problem that will destroy small and medium size businesses (which was the original claim). Apparently you disagree — such is life.

                I suspect that over time we’ll see what happens — some form of sales tax on online purchases will surely happen, and we’ll then see what the market does.

                Perhaps I have more faith in the ingenuity of the market than you.

    • Here's the burden

      P.S. Here is precisely how it becomes harder for a small business.

      Let’s say I sell beef jerky and items related to this. I have a small kiosk in a mall in Springfield. As part of that, I have to first understand what items are taxable and which are not, and I have to collect 6.25% tax on the taxable items from customers and remit to the state on a monthly basis. Cost of doing business.

      Let’s say that people love my store, and they keep telling me that they would have their friends buy from me mail-order if I just set up an online store. Well, these days that is pretty easy – I don’t have to worry about catalogs or anything, the Internet is the great equalizer – I can create a website, set up a shopping cart, and I’m in business.

      Now as a responsible business owner, I do not want to avoid paying taxes. However, here is what I’m faced with.

      The first week, I get 25 orders, which I ship at night because during the day I’m manning the kiosk. They are from 15 different states. They are for a combination of products ranging from a case of jerky, a t-shirt, a corkscrew, and a lot of individual bags of jerky.

      Now I know that in Massachusetts, the food items are non-taxable and the non-food items are taxable. But I have no idea what the rules are for Sacramento, CA. As of right now, I don’t need to know – I mail the order out and the buyer is responsible for knowing the rules of his own state.

      But if the law changes, I now have to notify the buyer as to how much sales tax they owe, I have to collect it, and I have to forward it to one or more parties.

      Collecting it is easy. The hardest part is knowing the precise tax laws in Sacramento. I start by Googling “Sacramento Sales Tax” and I find that the county rate is 7.750%. I then Google “how do I remit sales tax to Sacremento”, but there is no page that tells me how to do this. Maybe I need to call the county offices. I don’t know.

      In my travels, I find a document titled “California City and County Sales and Use Tax Rates”. It tells me “Many of California’s cities, counties, towns, and communities have special taxing jurisdictions (districts), which impose a transactions (sales) and use tax. These districts increase the tax rate in a particular area by adding the district tax to the combined statewide rate of 7.25% (effective July 1, 2011). The rates for these districts range from 0.10% to 1.00% per district. More than one
      district tax may be in effect in a given location.”

      More than one in effect in a given location? Crap. Luckily, Sacramento does not have this, but I have another order to the City of Woodland. They have a 7.75% tax, plus a 0.25% supplemental use tax, plus a 0.50% transaction tax, plus a 0.50% general revenue tax. Whoops, the latter one was only in effect from 7/1/2000 to 6/30/2006.

      Now I have to figure out which items in Woodland are taxable. I happened to have sold someone a corkscrew, a t-shirt with my company logo on it, and 5 packages of beef jerky there. Are those taxable? I have no fricking clue!. It’s not in this publication, I’d have to read some more California tax laws.

      So out of frustration, I Google “tax lookup Web service”, and I find one called DOTS FastTax. This is a web service that allows me to lookup tax rates based on zip code. Do you know how much this service costs? $119/month for the lowest tier, or $1,500 per year. OK, that’s a little steep, but maybe I can swing it since I’m making money from my kiosk. For the small-time ebay seller who is looking to sell a couple thousand dollars in items per year, $1,500 is a deal-breaker. He’s out.

      But it turns out that this service isn’t as good as it sounds. Yes, it tells me the rate for Santa Barbara (their example case). 6.25% to the state, 1% to the county, and 0.5% to the city. But it doesn’t tell me if the t-shirt or the corkscrew or the jerky is taxable or not. It also doesn’t tell me where to remit the taxes. And now I find out that I have to file a business registration form in each state that I sell in – Indiana will charge me $25 to do this.

      You know what? At this point, f*ck it! If I have to go through all this trouble to maybe make another $5k in after-tax profits from my online cart, it’s just not worth it. And the $5k isn’t worth it to anyone smaller than me either. Who is it worth it to? Wal-Mart. They already know the laws, there is no barrier there. Amazon doesn’t have a barrier either. In fact, no national company has a barrier, they will grab those sales in a minute.

      As for me, I’ve got my kiosk – except I’m now getting undercut by Wal-mart because they are grabbing lots of extra profit with their online sales – $5k per market sector.

      So much for supporting a local guy. So much for the $5k I was able to snag for our state from people outside the state too.

      Before you tell me that I can just pay all sales tax without collecting it, you’re at least wrong in Washington State. Their law states “Washington sellers may advertise the price of goods as including sales tax provided that certain conditions are met. Likewise, a seller and buyer may negotiate a lump sum price that both parties know and agree to that includes sales tax. However, the sales tax must be stated separately from the selling price on any sales invoice or other instrument of sale.”

      That means I have to correctly calculate the tax for each item sold and tell the buyer what it is.

      • Previous versions of the Main Street Fairness Act

        had a threshhold of $5 million in gross receipts before an obligation arises to collect and remit sales tax to remote jurisdictions. There are a few current versions floating around, but I’m pretty sure they all have minimum threshholds.

        • I see 1M

          http://blog.comptia.org/2011/10/25/another-take-on-internet-sales-tax/

          So if you are small business – you will find ways to keep your sales under 1M – or you just won’t expand.

          • A classic problem whenever a statute contains a small business exemption

            “You mean that if I make (the $ threshhold) – $1 then I am entitled to X (small business loan, tax credits, exemption from a regulatory burden) but when I make one extra dollar then I am no longer entitled!” It goes with the territory of having a small business exemption. And nexus is either all or nothing, its hard to phase in at different levels. You can’t have a little nexus, like you can’t be a little bit pregnant.

            But I would agree that $1 million in total sales is a low threshold for determining when a business is no longer a “small business.” I seem to remember previous versions setting that amount at $5 million, which seems more reasonable to me.

      • really good reply

        You got the complexity of what will happen.

      • Suppose we stipulate that you are correct

        Then the buyer in Sacramento buys from a local supplier instead of you. Meanwhile, a neighbor similarly stops buying from a California supplier and comes to your store instead.

        The point is that this doesn’t hurt “small businesses” — it hurts some small businesses and helps others.

        I still don’t see how any net harm (no pun intended) is done.

        • I guess that is one way to solve the "problem" of online retail sales tax

          Eliminate all but Big Business online retail.

          Doubtless, then we can return to our regularly scheduled programming of complaining about how Big Business has too much power.

          • Hyperbole

            I fear you assert a false dichotomy.

            There is a middle ground between online “businesses” that sell an occasional pair of used sneakers to customers in Birmingham and “Big Business online retail”.

  12. In one respect though, the Amazon ruling is the wolf among the sheep

    I tried last spring to do the right thing. At the office and needed another portable hard drive and a computer book. First stop over to Staples. They carried the drive for $240 but were out of stock. 0 for 1.

    Next stop to New England Mobile Book Fair. New owners have decided that computer books aren’t the priority they once were. 0 for 2.

    Back to the office, fired up Amazon. I’m a Prime member so two day shipping is free, overnight is $4. They had the drive for $140 ($100 less) and got the book I needed for $20 (50% off list). “Splurged” and went for the overnight shipping, so total cost of $168.

    If I could have bought locally, cost would have been $240 + say $30, or $270 before tax, $287 after the sales tax.

    Even if Amazon collected sales tax at that time, my total cost would have been $178, still a dramatic savings.

    And here’s the wolf among the sheep aspect of things: now that Amazon will be paying tax, they are free to open a distribution center here and expand on their same day delivery program. This is happening in CA right now. Think the main street mom and pop stores don’t know what is really coming their way.

    And as an observation with my dealings in the pension world with transmitting withholding taxes to feds and states, anyone belittling the complexities of transmitting sales taxes to states, counties, cities etc., all with different procedures and filing requirements doesn’t understand the problem. It is not a trivial issue.

  13. Just another observation

    Nobody is forcing any business to offer shipping, but if a business does decide to offer shipping they are not being asked any more than those businesses that already have physical presence in every state. If a large business can have the information for every state there is absolutely no reason smaller businesses can’t have exactly the same information. I swear we’re starting to sound like some kids I substitute teach who quickly say, “I don’t get it.” without taking two seconds to reread the material and expect me to do their work for them.

    • None of them get it now

      I am a practicing state and local tax attorney. I’ve drafted sales and use tax legislation, official policy statements, and opinion letters. I’ve written published articles and presented on panels at sales and use tax seminars. I’ve seen issues from both sides of the fence on the whole gamut of businesses, from small Mom N’ Pop shops to Fortune 50 companies. I assure you – this area is complicated. Large businesses pay a lot of money for sales and use tax advice, and they still suck at compliance.

      All that being said, I do personally support the Main Street Fairness Act. It promotes fairness between brick & mortar retailers and online retailers, it increases state revenue collection without imposing any new taxes, and it decreases the very high percentage of individuals who are currently cheating the state by not paying their use taxes. But it’s definitely not the case that the sales and use tax compliance is so easy that small businesses will have no issues complying. In fact it’s the exact opposite – businesses large and small are all terrible at complying, but the playing field will be even.

      • I think we agree more than you suggest up-thread

        I never meant to suggest that there were “no issues” complying.

        At the end of the day, I suspect that folks in your profession will find this to be very good for business — I’m glad you and your colleagues are around. I suspect that over time we’ll all learn how to translate your expertise into code that mostly does the right most of the time for most businesses and most customers — in my book, that’s good enough.

      • Not so sure about the Main Street Act

        So my smaller competitor (or importer) will be exempt from paying taxes, or some companies will split into smaller one.

        And I’m very afraid that states would use this to create Nexus – and my firm would have to pay local income taxes. Some states have been using attendance at a convention to force nexus – if this law isn’t written well (and I’m sure it won’t be) – it will be miserable for business.

        Individuals have no idea of the power of government – recently I was presented with a 30K bill from Medicare told I would have to pay by Friday or the justice department would get a judge after me. No idea what the bill was for – eventually figured out Medicare mistakenly paid a bill for an employee – this was their way of collecting – after hiring an attorney (3K in cost ) I got them to talk with BC/BS. I can see the individual states doing the same thing with sales tax collection.

        oh and don’t get me started on people who short pay their bills for sales tax amount. The amount is too small for collection – and you have to remit it.

        • Some fair points

          Oftentimes states will aggregate related entities to prevent large businesses from taking advantage of provisions aimed at small businesses. Not sure if that’s included in the Mainstreet Fairness Act, but its a good point.
          Nexus for S&U taxes has always been different than nexus for income tax purposes. Right now you can have S&U tax nexus without income tax nexus, or the other way around. I would hope that the statute would be properly worded and restricted to S&U taxes. (Intersting issue – I wonder whether the remote sellers would become liable for use tax on promotional materials mailed into a state when S&U tax nexus is created through the Mainstreet Fairness Act. Right now businesses pay use tax on flyers, coupons, and other ad materials that they mail to customers in states where they have nexus but do not in states where they don’t.)
          States often take aggressive audit positions, especially when dealing with out of state companies. Its a valid point. It sucks, but you can minimize the pain if you have good records, cooperate with the state auditors, and hire good professionals when you get to the point of fighting an assessment.
          Customers short paying sucks too. Tell them to just pay the damn tax and if they feel strongly that the item is exempt they can seek the refund for themselves. I know its not always feasible for business reasons, and sometimes you just have to eat it, but eventually you could either stop doing business with those customers or build the cost into your pricing structure the way you would with all bad debts.

      • So here's a thought...

        One thing that would make it easier for online retailers to comply — no sales tax exceptions. No exceptions for food, for medicine, for clothing, for comic books, for American flags, for nothing. Then, instead of having to read the fine print for each and every jurisdiction, all you need to know is the percentage. That makes compliance remarkably easier.

        Sure, you’ve still got paperwork and mailing checks. But, you don’t have to worry about coding each piece of merchandise for taxable or not in each of the jurisdictions. Instead, you collect tax on everything, the tax a function of the address on the credit card and/or where the package is being mailed [dunno which].

        • That would make it easier

          But those exemptions vary state to state, and are often seen within the state as important policy decisions to benefit a targeted group (poor people, job creators, etc). And if a federal law was passed saying that remote sellers have to withhold on all sales regardless of whether an exemption applies, then the law would flip the playing field from favoring remote sellers to punishing remote sellers. One of the main goals of the legislation is to level the playing field.

          The Streamlined Sales and Use Tax Agreement was an effort to get states to adopt uniform laws. Instead of getting rid of all exemptions, all states would adopt the same exemptions. And the same sourcing rules, and the same definitions, and the same procedures for exemption certificates, etc. The thought was that once states voluntarily adopt the same rules, Congress would allow states to impose sales tax collection obligations on remote sellers. As I mentioned before, some progress has been made. But its been 20 years and the progress often seems to move at a glacial pace.

          • I like level playing field

            but if small businesses want to complain that it’s too difficult because of all of the exemptions, simply get rid of the exemptions. It makes it more costly for the customers but easier for the business to comply.

            An alternative suggested above is to have a uniform Internet Sales Tax, where the rate and exemptions is uniform nationally, and the payments remitted to the states. If the states want to divvy that up according to some city or county differential, go for it, but the Feds would simply collect the money and pay it directly to the state (frequency TBD). This does have its own set of problems as the exemptions won’t match and will create loopholes where I buy all my meds online but my jackets locally, etc etc, but methinks it would at least move things in the right direction.

            And, if the state has no sales tax, great. You’re on the list of states which don’t pay Internet sales tax too.

        • Think outside the box

          A $5 million threshold is probably enough to exempt most small businesses. My views on the burden of such a regulation stem from the perspective of a truly small business – someone with a maximum of a couple of employees, but more often a person who does it himself, maybe some help from his spouse or kids.

          I really take offense to somervilletom’s “oh well, you won’t be able to sell across tax jurisdictions anymore but someone else will”. The reason this offends me is that over the past 25 or so years, it has become much, much harder to run any kind of sales-related business. The main reason for this is competition from big, big retailers. Internet sales are a way that a small guy can finally compete again. Without a “small business” exemption, this is another thumb on the scale for the large business because of the cost curve associated with this issue.

          Given that you must comply with at least some states that mandate sales tax being shown on the invoice for taxable items, there is a high up-front cost of tagging all your items per each of tax jurisdiction in the US as “tax” or “non-tax”. I wouldn’t write this off as an optional requirement – if, as a business owner, I want to purchase 100 widgets from you, I need to pay use tax on the purchase price – but not on the tax paid. So I require my invoice to have the tax broken out from the unit price.

          This is a substantially high burden with little payoff because the odds of a small business selling an item in any given jurisdiction are close to zero.

          This will also need to be monitored because tax laws change. For example, MA is talking about taxing candy. I would be curious to know how many person-hours are devoted to this task at Amazon, because the person hours would be fixed across anyone having to comply. I bet they have at least 1 full-time person responsible for this, which means that anyone who has to comply needs to hire an employee to do so. This is a steep expense for any business with under a certain number (20?) full-time employees.

          This categorization isn’t well-suited for an electronic web service because there is no national UPC code database, and there would be no way to look up items based on their description. The closest you could get would be a product category lookup.

          Now here are the acts that have a high transaction cost:

          1) First sale of a new product to a new city in a new state. You have to now register with that state, there is sometimes a fee (IN is $25).

          2) First sale to a new city in a state – register with that city.

          3) Keep a schedule and remit taxes to each tax-collecting entity. Here’s where the lack scaling comes in – until you reach a certain number of customers so that you have repeat customers per locale, this is going to be a costly task that is incurred for each customer that you gain.

          This sounds like it could be a full-time job too. I worked for a retailer that did business in just seven states – we had a person who worked at least half-time on sales tax remittances (and dealing with state audits – which happened with some frequency).

          I wouldn’t count on a “small business” exemption lasting long – people in this very thread are raising the specter of “not fair that my smaller competitors have it easier”, and someone else implied that the “playing field would be even” if all companies had to comply equally. Given that full compliance is probably about 2 FTEs, I think that in order for no one to complain, you’d have to draw the line at a company where $150,000 amounts to less than 10% of the profits because a $150k compliance expense on $1.5m in profits would be a pain that companies will seek to alleviate by lobbying to change the law.

          I agree that internet-based sales are hurting states by omitting the sales (use) tax. Maybe the solution is that we need a simpler federally-sponsored program which a state could opt into. Maybe there would be a 4% tax on any goods purchased via mail, a merchant would remit payment to a federal agency (along with a per-zip-code breakdown) and this money would be sent by the federal agency to the proper final jurisdictions based on agreements made with the states.

          If a state like NH didn’t want to opt-in, the NH residents would pay no sales tax on their mail-order purchases. If a state like MA did want to opt in, their residents would pay 4% in “use tax”. The merchant would simply have to track sales by zip code, remit 4% of the gross sales receipts to the federal agency, and the agency would pass this to the states.

          If you don’t like a single rate, then make it a per-state rate and let the rate be published by the federal agency (one stop lookup), with states setting their own number. But make it for all goods, because that is the major hassle – knowing which goods to charge sales tax on.

          • just dealt with a large retailer

            They had a 30 page document – detailing how their vendors were supposed to report or not report sales taxes – we had to review it – what a nightmare – I’m sure they have full time staff who try (and I say try) to deal with this.

          • I like the idea of a single rate nationwide

            Perhaps a learning of all this is that online sales make the idea of “local” purchases unworkable, regarding setting and collecting sales and use taxes. I’m drawn to the proposal of a single nationwide rate, with local opt-in along the lines of your description here.

            But haven’t we then ducked the real dilemma — taxing brick-and-mortar business differently from online?

            A single national rate would therefore need to apply across the board, right? All retailers, whether online or brick-and-mortar, would follow the same rules.

            I’m not sure that ANY tax solution is going to provide any sort of long-term protection for small businesses against “big big retailers” — particularly if we allow the current wealth concentration to remain or increase. When so much wealth is concentrated in the hands of so few people, those few people acquire ENORMOUS power to assert their will.

            I think that if more of our economy’s wealth were in the hands of consumers, those consumers would be buying and selling among each other more — I think the resulting increase in prosperity would make this entire discussion seem far less grave than it appears today.

            • Sure

              But that is why mail-order businesses have never been required to collect sales tax, except in the state where they actually are.

              In this long thread, no one advocating this policy ever asked why it was that things came to be this way. We directly went from “we need to collect more tax” to “there’s a loophole we need to close.”

  14. I think this law should be expanded...

    [Sarcasm]
    All the brick and mortar stores should be required to ask for ID on all sales. If I go to NH to buy a TV at Sears, they should check and see I have a Mass ID and collect and remit the 6.25% Tax to Mass!
    [/Sarcasm]

    • All sarcasm aside ...

      If you go to that NH store, schedule a home delivery, and provide a Massachusetts address, then the store SHOULD collect the Massachusetts sales tax. I’m under the impression that this is already the case — if not, it should be.

      It isn’t possible to buy online merchandise without showing ID and providing a shipping address. I am unaware of any public-policy reason (other than sheer anti-tax greed) why online purchases should be taxed any differently from brick-and-mortar transactions.

      • "I’m under the impression that this is already the case"

        I don’t think so, though I could be wrong. I think this is a “use tax” situation, i.e., the responsibility to pay the tax rests with the buyer, not the seller. I’m not sure that delivering merchandise into MA is enough to saddle the seller with the responsibility to collect sales tax – if it were, wouldn’t online retailers already have to do so?

        • I think Tom is correct.

          Of course technically you’re supposed to declare your NH purchases on MA income tax forms too, but I don’t think many do except possibly for large purchases.

        • Fuzzy memory perhaps, but still ...

          I’ve lived near enough to the NH border for years that I occasionally end up buying items there (for availability, not price or taxes). I could be wrong, but I’m reasonably sure that when I’ve asked about delivery, the store has told me that if I have the item (like a refrigerator) delivered to a MA address a Massachusetts sales tax will be applied in addition to the delivery fee.

          I’m not totally certain of this, because it’s been a few years. I’m more certain that this was a matter of much heated debate when Pheasant Lane Mall (which straddles the NH/MA border) first opened. I’m sure that Lechmere (which was an anchor store at the time) had some exits in MA and some in NH. MA authorities insisted that the store apply MA sales tax on those registers that were in MA. I think that the store was also required to charge MA tax on all deliveries to MA as part of the same issue, and I thought that the argument was that this was required of EVERY NH store. Pheasant Lane Mall has been open about thirty years now, so my memory of even that might be clouded by what I think ought to have been rather than what was.

          • This will hurt the economy

            Companies will want to keep their gross sales under 1M to avoid complying with the law or split into separate small divisions.

            Companies with sales from 1-20M are going to have a big administrative burden thrown on them. Just as Obama care kicks in.

            Companies from Canada are going to have advantage over US firms – as I believe NAFTA will not allow collection of sales tax.

            All in All this is a pretty bad bill – just when the economy is starting to improve let mess it up.

            • Just another Taxes-BAD knee-jerk

              As far as I can tell, every effort to increase tax revenue is a “pretty bad bill” in your book. It appears to me that you start with the “taxes hurt the economy, government is bad” dogma and construct your response to every proposal from there.

              The economy is improving more slowly than it has in past recoveries precisely because the right wing (aided and abetted by Barack Obama) has used the utterly baseless “austerity” narrative to strangle the government spending that would otherwise continue to prime the economic pump. As a specific example, unemployment is unacceptably high because so many GOVERNMENT workers have lost their jobs — the private sector has been creating more jobs than in past recoveries, but local, state and federal agencies have slashed employment in the public sector.

              Your arguments against this bill are similarly grounded in dogma and ideology rather than facts. The distribution of company size, based on revenue, against the number of companies of that size is a classic long-tail “scale-free” distribution. There are thousands of companies at the small end of the distribution for each company at the large end, and the few companies at the large end are thousands of times larger than those at the small end.

              Like all logarithmic distributions, this distribution defies the simplistic intuitive reasoning you attempt to apply. While it may be true that a few companies at the threshold might manipulate their business practices because of the threshold, those few companies are not going to make ANY DIFFERENCE WHATSOEVER in the larger picture. A twenty or two hundred or two thousand million dollar company is NOT going turn handsprings to avoid this sales tax. Similarly, the purpose of the 1M threshold is to limit the burden to those companies large enough to comfortably shoulder it. The “big administrative burden” is no worse than already required to handle online payments, typical security requirements, or — for that matter — normal software updates and upgrades. Software is complicated. So what. I’m not going to bother responding to the NAFTA dog-whistle, you might find a more receptive audience in Waltham.

              This will, in fact, help the economy by helping the government. The dismal state of public transportation, transportation infrastructure, and education is a large factor in holding back the recovery in Massachusetts. Companies struggle to recruit out-of-state employees, people who want to live here are forced to move elsewhere. Knee-jerk opposition to EVERY tax increase played a large role in creating our current crisis, and knee-jerk opposition to every tax increase paralyzes our recovery.

              We NEED new tax revenue, and this is a good start.

            • Or will it help the economy?

              It all depends on which kind of retail operation is better – bigger or smaller?

              Retail doesn’t drive demand. Demand drives retail. If people keep their sales under $1m, then that leaves more opportunity for others to fill the demand.

              The plan doesn’t sound terribly bad. The points are:

              1) Seller submits to one entity per state. That’s way better than 10,000 tax jurisdictions.

              2) Allows for just a single audit per state, not 10,000.

              3) State provides free software to calculate the tax.

              4) Requires one single tax code per state.

              5) Exempts businesses under $1m in revenue.

              The burden isn’t that high and it kicks in at a point where you’re doing high enough volume to be a serious business ($1m in $10 items means you’re selling 275 items every day. $1m in $100 items means you’re selling 28 items per day). I really can’t see too many already-successful businesses saying “screw that, I’m going to stop selling things in October because I’m at the $1m threshold and that means next year I’d have to collect sales tax. December 28th, maybe, but no one is going to seriously sabotage their business to stay under the threshold.

              Now is this going to save brick and mortar stores? No, I doubt it. The internet is certainly putting a knife into them, but they were already in the ER, having been shot by big box and national brand stores. There is no more Main Street, so your choice is now big box for the common items, internet for the uncommon items. There is no room for a small local specialized store that has both at higher prices on each, except maybe one that also does internet sales.

              • What about large value items.

                So I sell something worth $100,000 and I’m forced to pay sales tax – my small competitors and my competitors from Canada aren’t – who is going to get the project?

                Or my client stiffs me for the sales tax.

                There is a gross revenue tax in Massachusetts I think 7M – lots of companies reorganize to avoid it.

                BTW – last state sales tax audit cost me 10K – so 37 x 10K = 370,000 – that’s a lot of money

                • Ridiculous case

                  If you sell just 1 item for $100k, then you will have plenty of time to collect the sales tax from your client and remit it to the proper jurisdiction. If your client doesn’t pay it, then don’t send them the item.

                  By the very definition, if you’re selling items for $100k then you have no small competitors also selling for $100k who can avoid this tax, except perhaps Canada, and I would expect there to be some serious trade issues for transactions of that magnitude across international borders.

            • silliness...

              Companies will want to keep their gross sales under 1M to avoid complying with the law or split into separate small divisions.

              Companies with sales from 1-20M are going to have a big administrative burden thrown on them. Just as Obama care kicks in.

              So, let me see if I understand what your contention is: smaller companies WILL accept the greater administrative burden of splitting into separate small division but larger companies WON’T accept the administrative burden of paying taxes, even though they already have this same burden on ‘brick-n-mortar’ stores?

              A Charlie Pierce is wont to say: the gob, it is smacked.

              Companies from Canada are going to have advantage over US firms – as I believe NAFTA will not allow collection of sales tax.

              Which is only far, right, because they already have the disadvantage of, you know, being from Canada…

              • 37 taxing authorities ?

                If you are in the 1-2M range – you can probably split your company – and avoid taxes – just as companies in Massachusetts that are close to the 7M threshold do. Two divisions are a lot easier than dealing with 37 different taxing authorities.

                If you are 20-50M – you have a department to handle it – you probably like this – as it will mess with your smaller competitors.

                In my business importers (some from Canada) will have a advantage over domestic producers – they won’t have to pay or fill out the tax forms and will be able to offer “tax free” prices.

                Just try and figure out the paper work required for the 37+ states that collect taxes or the audits – or the classifications. There is no easy software fix – sorry – companies used 1000′s of different versions of software – some not even supported anymore.

                Last time I was in a tire store – they were running I believe a DEC (Digital equipment) terminal into some type of mainframe – this is just a example – there are 1000′s of programs – and it’s not going to be trivial. It’s probably a bigger problem then Y2K.

                • Read the law

                  1) the sales of all persons related within the meaning of subsections (b) and (c) of section 267 or section 707(b)(1) of the Internal Revenue Code of 1986 shall be aggregated; or

                  2) persons with 1 or more ownership relationships shall also be aggregated if such relationships were designed with a principal purpose of avoiding the application of these rules.

                • Sounds like a business opportunity to me

                  THIRTY SEVEN! Wow! If it was 42, I guess we’d REALLY be in trouble, huh?

                  Do you have any idea what happens when you click that little “Windows Update” button?

                  How many issuing banks are there for Mastercard/Visa? How many conflicting rules for privacy and security governing the millions of cards that those banks provide? Yet somehow merchants figure it out — and make money doing so.

                  Somehow TurboTax and its competitors get a far more complicated problem mostly right for most every state, and do so each and every year.

                  This is just not that hard. I’m sorry, but it’s not. Hard enough that I’m sure it presents a business opportunity for several new startups (or new divisions of existing players). Hard enough that you will apparently prefer to pay somebody else to do it rather than sort through it yourself.

                  It frankly sounds like you are still singing the same song — looking for rationalizations why this is a terrible idea and how onerous it will be, rather than accepting that we MUST raise tax revenues, that online merchants have gotten a free ride long enough, and that the benefits of putting this place far outweigh the costs.

                  And it will likely even provide new jobs for a few dozen programmers, marketing executives, and CEOs.

                  • 2 hours a month to fill out MA forms

                    In my small company it takes probably 2 hours a month to deal with the MA sales taxes – if we have to fill them out for 37 states – that 74 hours a month. This is a 1/2 time employee in a small company – who is going to pay for this.

                    There is no such thing as “windows update” for specialized software used in small businesses – update are expensive – painful and in a lot of cases un-available. When we update our manufacturing software – it’s a month long process – and can disrupt production for a week – we try not to do it.

                    Then there is the issue with medium size companies competing with smaller companies. If this bill passes I know I will lose project to companies who don’t charge sales tax.

                    • This is getting tiresome

                      I don’t mean that there is a “windows update” for small business software.

                      I mean that the complexity of doing windows update exceeds the complexity needed for this problem by several orders of magnitude. Windows update has to work across millions of machines, thousands of platform types, tens of thousands (if not millions) of configurations, and it has to get updated — automatically — about once a week.

                      It’s free.

                      If you are spending two hours a month doing MA taxes by hand, then you already need help. You’re making this problem far, far harder than it is.

                      I’m still not clear whether you are an online or a brick-and-mortar company. If you’re an online merchant, then your time and energy is much better spent getting a solution in place than continuing to whine and gripe about it. It’s going to happen.

                    • Google ERP Software

                      There are probably a thousand different vendors of Enterprise Resource Software. These software packages are used by mid sized BtoB manufacturing companies .

                      None – none of their updates are free and some companies are out of business. The maintenance contract on the package we use for 5 users cost 10K a year – and I doubt they would provide an update for the proposed sales tax law change.

                      Yes it takes us hours to deal with Massachusetts Sales tax – we have to get exception certificates from non-profit and government agencies – and we have to make sure the certificates are accurate and correct, if they are not when the DOR audits us we will have to pay the sales tax and penalties. These penalties are not just on the one certificate you missed – they will use this as a benchmark % and apply it to all back years in the audit.

                      The Main Street Act is a large administrative burden and wrong. My company pays all (actually more because it’s cheaper not to have to fight with the DOR) sales and use taxes. It will put my firm at a competitive disadvantage with smaller firms and firms that import into the US.

                      Yes we are a brick and mortar manufacturing company.

                    • So how does hurt you?

                      If you are a brick-and-mortar company, then how does the legislation hurt you?

                      The fact that you’ve chosen an expensive ERP package doesn’t speak to the complexity or cost of tracking sales taxes. My quick Google search (“ERP sales tax”) yielded enough hits to conclude that solutions are available for those who seek them.

                      Are you saying that your company pays the sales and use taxes on items you use in your manufacturing process? If so, then you have a larger problem than the Main Street Act. Perhaps you fear that you will have to PAY sales tax on items your company is purchasing online?

                      The plain fact remains that sooner or later the sales tax exemption for online purchases will go away. It is an anachronism and bad tax policy to boot. Your energy is better spent turning that reality from an aggravation into an advantage.

                    • Hurts us in a big way

                      Items used in the manufacturing process are exempt from sales tax. But this law even gets murky – a welding table may or may not be exempt depending on the interpretation of the law frankly it really should but DOR sort of thinks not – and it’s cheaper to pay then fight.

                      I would say 90% if my clients pay “USE” tax where applicable – but the other 10% won’t and by having me collect sales tax – it will drive this clients to companies with revenue under 1M or exporters from Canada.

                      Good luck changing ERP packages – with have 10,000 parts – and probably 2000 processes designed – the last time we changed ERP packages – we lost probably a few months of output.

                      Either the revenue limits need to be raised or in one version of the bill – there was a 50K limit per state – either would help with some of the negative problems with this bill.

                      But hey – nobody cares about manufacturing.

                    • You didn't answer my question

                      The proposed legislation imposes a sales tax on online merchants. You are a brick-and-mortar manufacturing company. Unless you are currently reliant upon online sales for goods and material that you incorporate into your products, I fail to see how this legislation applies to you. Whatever complexities exist in sales tax for brick-and-mortar merchants have existed for some time now, and this legislation doesn’t change those.

                      As I said above, it appears to me that your best strategy is to simply deal with it — it will happen, in one form or another, sooner or later.

                    • Its not just "on-line merchants"

                      It’s remote sellers – so if you are based on MA and sell to NY – you are a remote seller. There is not an “on-line” tax – it’s a tax on all commerce.

                      (6) REMOTE SELLER- The term ‘remote seller’ means a person that makes remote sales in the State.

                      This also means my vendors will require my manufacturing exemption certificates – or they will be required to add sale tax.

                    • Your problem is your process, not the laws

                      I’m well aware of what the law is about.

                      Your problem appears to be rooted in the shortcomings of your own process and infrastructure. Yes, your vendors will require your manufacturing exemption certificates (or be required to add sales tax).

                      The fact that you’ve been able to conduct these remote sales without taxes until now is a happy accident (for you). From a larger perspective (beyond its impact on just you), there are surely local brick-and-mortar competitors who HAVE been paying those local taxes, and for whom YOU are analogous to those evil Canadian suppliers.

                      Remote selling and online purchasing are here to stay. It is time to update our sales and use tax infrastructure to reflect that reality.

          • Pretty sure the entire Pheasant Lane building is in NH.

            All Tyngsborough gets out of the deal is a parking lot. In fact the original design had a corner of JCPenney jut into MA and it was cut back for that reason. The state line essentially follows the wall that was created there, paralleling it a few feet away. If you stand facing that wall from the outside you’ll notice that if you look left and right no part of the building goes beyond that imaginary line. None of the stores within the mall charge sales tax.

            • Did you check with Google Maps?

              According to my Google maps, if I stay out of 45 degree mode, the state line cuts across the the end of Sears and JCPenney.

              I know this was an issue when the mall was built, and I doubt that the state line was moved (though all is possible).

              • I guess it was JCPenney that I'm remembering after all

                According to Wikipedia, the Lechmere store was where Target is now. That’s on the opposite side of the mall from the state line, so I must be misremembering the stores involved. Wikipedia says that JCPenney was re-bricked to stay on the NH side of the line. I guess that Google Maps has the state line in the wrong place.

                I’m quite certain about the dispute, it was front page news in the Lowell Sun for at least months. The mall opened in 1986, by the way.

              • I did after you asked.

                Both satellite and drawn show what you indicate, but I question Google’s accuracy with regards to the placement of the state line. I still say nobody charges the sales tax in that building, and they cut back precisely to avoid having stores straddle the line. I am certain the line was not moved too.

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