I recently learned of H.R. 5660, a bill first introduced last July, more commonly known as “The Main Street Fairness Act”. It is likely to be reintroduced in the 112th Congress, in a bi-partisan effort. This bill, if passed into law, would require internet retailers to collect sales tax for and remit to all 50 states. Read the text HERE.
Most shoppers are aware that purchases made over the internet, from sellers not having a physical presence in the same state as the purchaser, do not have a sales tax collected with them. For example, let’s say you order a $100 coffee grinder from us via the internet. If you are not from North Carolina, we do not collect sales tax for your state, and your bill is $100, plus shipping. If you are from NC, we collect NC sales tax (most likely $7.75, but if could be $8.00, or it could be $8.25, depending on the county in which you reside), and remit it to Raleigh, so your bill is $107.75, or $108, or $108.25, plus shipping (if applicable). North Carolina residents would pay us the same amount whether they made their purchase from us in person or over the internet.
Lawmakers are claiming that this discrepancy is costing states billions of dollars (collectively somewhere between $21 and $34 billion, to be precise) in missed revenue that need for essential services. And by God, they want their money.
Their argument, however, is that the current “exemption” puts brick-and-mortar sellers at a disadvantage compared to internet sellers. It is worth noting that the current system came about from a 1992 Supreme Court decision (Quill Corporation v North Dakota) which found that the patchwork of complex state and local sales tax rules were a burden to interstate remote retailers, and therefore, Internet and catalog retailers should be exempt from collecting sales taxes unless they have a physical presence, such as a store or warehouse, in the purchaser’s state.
Amen, brother. We only report sales taxes in one state currently. I can tell you firsthand that the patchwork in North Carolina alone is a pain in the ass at best, and a likely source of unwitting noncompliance, at worst.
I hope that you, like us, will oppose this bill. Truth be told, I don’t care about the money. We have never made low prices a core strategy of our business, and candidly, most customers who buy from us will be insensitive to paying the tax, because they buy from us because of quality, diversity of choices, trust, or other reasons that are not linked to paying a few percent more or less on any given transaction.
We oppose this bill for four reasons:
- In most cases, consumers are already obligated to remit the sales tax due on out-of-state purchases to their state, as part of their state income tax filing. The groups in favor of this bill euphemistically suggest that consumers “don’t know” they have this obligation. Don’t know? Bullshit. If you can read, you know. If you signed your tax return, you attested to its accuracy. So this is another case of already having a law that is not enforced. It’s simply a matter that government would rather prosecute businesses than individuals, for obvious reasons. I say no. If you think I’m a tax cheat, come get me as an individual.
- We are both a brick-and-mortar retailer, and an internet retailer. Is it true that internet retailers place brick-and-mortars at a disadvantage? Hmmm. Well, technically, I guess it might. But the modern reality is that retailers MUST be both to satisfy consumers and be competitive. To have the government desire to protect retailers that choose not to sell online is ludicrous. It’s akin to protecting buggy whip manufacturers from automobile manufacturers. It’s crazy. I want to live in Mayberry, too, where we all take Sundays off, go fishing with cane poles, and come home to a big chicken and dumpling dinner made by a smiling mom in high heels, a skirt and pearls. But wishing it doesn’t make it reality.
- It will create a very real and painful administrative burden on business, especially small business. For North Carolinians alone, we must determine the county of residence of every online purchase (there are 100 counties in NC), and assess the proper tax rate. Our web site wasn’t originally constructed to figure out your county (it wasn’t a requirement when we built it four years ago), so now we do it manually. It takes hours every month. Not to mention that because 83 of 100 counties collect one rate, we assess that rate, and if you ordered from one of the 17 who assess a higher rate, we pay the difference from our pocket. It is truly a pain in the ass. In the US, 45 states have a sales tax. So now we’re going to need to multiply the NC burden by 45, and that’s after we figure out how to do it the first time, which will not be trivial. Let’s say we spend just one hour per month on NC sales tax administration (it’s a little more than that, but not too much more) – we’ll now be looking at a full work week just to report and pay sales taxes. Obviously that’s not workable, which means some investment in upgrading our web site and accounting systems will be required. There are 29.6 million businesses in the US, 99% of which are small businesses, according to the SBA. If each one spends an additional $1209 per year on compliance (which seems like a perfectly plausible outcome), the entire benefit of collecting the “avoided” tax is evaporated.
- The states’ argument that they are somehow missing out on revenue is based on the likely erroneous assumption that the tax savings realized by their citizens by out-of-state online purchases is not somehow spent in state. For example, if I save $8 in taxes by buying my grinder from an out-of-state online retailer, I am very likely to spend that $8 on something in state, whether it’s extra tools from Home Depot, or a sandwich from Neomonde Deli. So I don’t believe for a nanosecond they are missing tax revenues.
Please contact your representative to tell them how you feel about this bill (even if you don’t agree with me, tell them that). Use the “Write your Representative” link on the right side of this page. But please don’t let this thing pass into law just because nobody cares enough to point out the flaws in their logic and the harm this is likely to inflict.
Totally agree. I’m not against the theory of states getting revenue to pay for Medicaid, bridges, etc, but making small businesses collect and remit sales taxes for all fifty states is totally not worth the administrative burden. Especially when the states also vary by county, as NC and PA both do (Phila tacks on its own 1%). If desperate for money then just bump my state income tax rate up by a half point or whatever would yield the same revenue. Way simpler to collect. All the costs of collecting it are already being spent anyway. Just a different factor to multiply.
I suppose there could be a clearinghouse for the 50-state sales tax thing. But still a waste of overhead to collect.
Keep it simple and vote No…for this Bill
Your third point really isn’t true at all.
Take a look at http://www.fed-tax.net
It’s a free service that can calculate and manage all of your sales tax reporting and obligations regardless of the municipality. Aint technology grand?
@IBognar – Thanks for your comment.
I took a look at the site you referenced – and maintain that my original point #3 IS in fact still valid. More so than ever.
There was never a doubt that the technology *exists* to automate tax lookup based on zip code. BFD, everyone knows that. The real problem is that it is not currently integrated to my web site. So that needs to be done, and that will not be free (unless of course you want to do it for every one of the 29 million + small businesses in the US). So there is the hassle and expense of integration.
Then there is remittance. How will that happen? Magically? No, once again, the burden will fall on the business. Even a streamlined remittance is more hassle. And it is almost certainly going to be in addition to what I do now, because I don’t believe for a minute that my state will remove the current burden in favor of particpating in a “streamlined” effort.
And why? There is already an obligation in my state (at least) for consumers to report out of state purchases. Why do you want to take their burden and put it on me? Because consumers dodge it? While that may be true, that’s not a good reason to make it my problem.
And I stand by my final argument that the sales tax avoided on internet purchases are ultimately spent in-state, providing at least part of the missed tax, and giving a boost to in-state businesses, which creates employment as well as payroll taxes, real estate taxes, etc.
No, all in all, this is a bad idea.
I agree. This legislature just passed in Arkansas, where I am an online affiliate of many merchants. After the law passed almost all merchants discontinued our relationship together. They don’t need the few affiliate businesses in Arkansas that are promoting their products. It is no big deal to them. They still have millions of other affiliates in every other state to sell, and still won’t ever have to remit sales tax. But for all of the businessmen and businesswomen who make their living by marketing for affiliates in Arkansas, this means they can no longer do their business…Fair? doubtful.
Also, small businesses claim that this will protect them as customers will no longer be able to buy from online merchants because they will “now” be liable for sales tax. Haven’t they always been? Yes, but no one ever does it, and the state doesn’t come out looking for them. I think you made a great point that it is ridiculous for that burden to now fall onto businesses. I also loved your point about the “savings from sales tax on online purchases,” as I know that any money i have saved from buying online has gone right back into Arkansas…and for what?
By the way, to avoid this issue, all I have to do is incorporate in a state that does not have the legislation, which means Arkansas no longer collects franchise tax from me, and a handful of others who will do the same. Politicians think they have law degrees and know everything, but I really feel like the people really trying to push it really don’t have any real insight to the many implications and repercussions that will come of it.
And brick and mortar stores can get the hell over this level playing field bs.
i’m off my soapbox now.
What if there were a flat sales tax that we remit to one location, and then they divide it accordingly amongst the states? You would just have to list the dollar amounts owed to each state. It seems like you are arguing the logistics more than anything. When you sell multi-thousand dollar items like we do, you better believe we lose sales to out-of-state ecommerce. You and I chose this life entrepreneurship…..and I support most of the bill.
At least people are talking!
-eric
@Eric – thanks for your comment.
What you propose is a federally-administered sales tax, which is essentially what’s being proposed. It requires me to account for sales by state, so I’m against it. It’s more work for me, period.
It’s each state’s problem to figure out how to collect tax revenue from its citizens. It’s not my problem. Sorry to be so blunt and seemingly uncaring about the plight of states I don’t live in – but that’s the reality. Some states manage to balance their budgets without any sales tax. How they do it, I don’t know, nor do I care. But it is possible, obviously. So how about the same approach nationally? Whatever the answer is, I don’t want it to amount to a single stitch of new work for me; I have enough already. (isn’t it ironic that it will be the same amount of work for me to determine non-sales tax transactions as it will sales tax transactions?)
Many small businesses are local and have to compete against large online retailers. Small businesses are obligated to file the sale tax receipts if they are not collected at time of sale, this is incredibly burdensome for the end -user. Many of on-line companies have a significant economic presence in all 50 states (Amazon, Tiger Direct etc.) this the electronic levying of taxes is a small cost and will become even less expensive once there is a uniform federal law on collecting these taxes. Collecting taxes on these items is less burdensome on teh economy that taxes taken out elsewhere (payroll, income etc.)
@Jon – Thanks for your comment.
I’m a small business. I compete against large on-line retailers. You are correct that as a business, the business is obligated to collect and remit the sales taxes for items purchased within the state in which I operate. I am not obligated to collect sales taxes for items purchased from outside my state.
As a resident of North Carolina, I am obligated to remit sales taxes on items I purchase outside the state, or from internet retailer who didn’t collect NC sales tax. I can either itemize my purchases, or the state has a worksheet that I can use to estimate the amount. The fact that this accounting is tedious (if itemized) is not burdensome on the economy. I don’t know of anyone who fails to make an online purchase because they don’t want to account for the sales tax.
I don’t trust the government to streamline anything. I expect that a requirement to collect and remit sales taxes for all 50 states will just be yet another administrative burden on my business.
I understand that the motivation behind this is to collect on what the state governments feel their citizens are “cheating” them out of. So because your citizens are cheating you, you want to put the burden on me?? Not fair. Either make an effort to enforce your own citizen base, or better yet, eliminate sales tax altogether (isn’t it ironic that it will be the same amount of work for me to determine non-sales tax transactions as it will sales tax transactions?). Or, move to a higher flat-tax style sales tax on in state transactions that collects the amount you feel you’re being cheated now. But don’t increase my burden just because as a state you feel cheated and/or don’t want to increase your own administrative burden.
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