It seems the issue of Internet Sales Tax is hitting high/low points of late.

Reporters/bloggers work hard to express views to support their side.  Few hit the mark.

An example is an article written on the Columbia Daily Tribune I respectively disagree with many of the ‘facts’ written in the article.

The author claims a new study shows that the State currently missing out on $468M in sales tax revenue, over double what a University of TN study made on 2009 which claimed a $200M est. tax revenue.  Everyone loves to inflate numbers, and who knows, the numbers they use may very well prove the point they are looking for.  Data I have comes from the Commerce Dept.  In 2009, Gross online sales across the US was $145B.  I made up a spreadsheet based on those numbers that can be viewed here.  Based on those numbers Missouri claims $2.8B gross sales and $119M Use Tax revenues. Based on MO base tax rate, the University of Missouri Truman School of Public Affairs’ Institute of Public Policy claim of $468M tax would represent over $11B in online sales for Missouri in 2011.  A number that I question.  Missouri has a population of less than 6 million residents.  Do the math.  The study shows that every man, woman and child spent $1800 online in 2011.

Next the author makes this outrageous claim:

“If Congress passes legislation requiring companies to collect sales taxes on e-commerce and remit them to the states, local governments would have to pass a local use tax to collect their share. Boone County and Columbia do not have a local use tax, and voters shot down attempts to pass one in the ’90s.”

Granted, I do not know Missouri State Law, but in most States, Sales tax is divided or shared as income for county/city revenue needs.  The claim that local governments are missing out on a piece of the tax pie is folly at best.  Again, do the math.  Assume that a local community has a voter approved tax increase to build a firehouse, community center, or even one to build a statue in town square to celebrate Earth Day. Just how much online tax revenue is the city losing out on online sales?  Most county/city added sales tax is just 1%. Take a city size of 100,000.  If every man, woman, and child each bought $50 of online items each year, that represents only $50K in tax revenue would be realized.  Why a citizen tax revolt (citizens voted down earlier proposals)?  Simple.  All non-online sales would be taxed at the additional rate.

As an online retailer, I oppose forcing out-of-state sellers from collecting Missouri Sales Tax.  A quote from this article tells a lot:

Columbia City Manager Mike Matthes said he hopes to gather officials from the city and county this summer to discuss how to approach a use tax. Tax systems have not kept pace with technology, he said. “Our systems need to accommodate the Internet.”  His system and MO DOR do nothing to satisfy requirements of Quill v ND. States have done nothing to help online with software.  To date there are over 11000 tax districts, and none are defined by zip code.  Worse are compliance costs.  For online to collect/remit Sales tax, estimates range for 5% to 17% for every tax dollar collected and States are unwilling to reimburse those tax collectors (online retail) for the paperwork and fees involved.

I could care less, nor why should I care, that a local community has a voter approved tax.  The same could be said for an online Missouri seller that needs to know the ‘weird’ laws we have in South Carolina.  This is one of the problems of Internet Sales Tax.  No one is willing to walk a mile on the other guys feet.  Sales Tax works great for one store, one location, and one tax rate; it was never designed for mail order, or today, the internet.

There is a flurry of activity in Congress. Last week, Sen. Alexander introduced the Marketplace fairness act (S.1832).   The Bill would allow States for force online retail located outside of their State to collect and remit Sales Tax.

B&Ms have long declared that an ‘unfair advantage’ exists between local retail and online sales, claiming a price advantage/disadvantage, as online does not require the collection of Sales Tax for out of State sales.

On paper, there is no disadvantage, as consumers still owe Use Tax for purchases made online.  Why consumers don’t pay comes down to many factors.  Leading the list is most consumers don’t know such law exists.  Bad on State DORs for not educating the public.  Next is lack of enforcement.  Some States have a line item on the tax form, other States have yet to add this feature.  Last on the list is Tax Revolt from the public.  Either buyers choose to break the law or are making a statement that States have a spending problem.  Most agree that all of Government has spending problems, but that’s another issue for a different blog post.

B&Ms, large and small, are screaming this is a fairness issue.  Really?  A B&M has one store with one location and one tax rate .. and they only fill out one tax form.  If this bill passes, online would be forced to file 45 returns AND keep up with local tax rates, exemptions, and other various regulations.  From an admistrative standpoint, I would hardly call that fair.  Does a State charge Sales Tax for shipping?  Some do, some don’t.  Is Cotton Candy a Food, Entertainment, or Sugar?  Depending one where you live, you may be taxed for one, none, or all three.  Again, that law works well for one store with one location, but why should I know or care located 10 States away? Here in South Carolina, if you are over 85, you get a 1% discount on Sales Tax. That law (notice) must be placed behind the register. I can just see a seller located in California complying to that law.

This bill, as well as others proposed in the 112th Congress offer exemptions for small sellers.  S.1832 sets that at $500K gross sales.  Is that a good or bad loophole?
Certainly eBay sellers who are cleaning out the attic should not be subjected to a mountain of paperwork, but is that fair to buyers? So this website (or eBay listing) does not charge Sales Tax, but this other one does.  Is that seller legit?  Are they following the law?  Will a whistleblower trigger a needless audit?   Will bargain hunters seek out those items that legally don’t need to charge Sales Tax?  Will S.1832 eliminate the need for Use Tax law now on the books?

Be careful what you wish for B&Ms.  Do you have a website?  If not, you should get one.  That $5-$10/mo. for nothing more than a home page will bring in more business than a Yellow Pages ad.  Selling products online will bring in more revenue to your business.

Here is the pitfall to B&Ms that have an online presence.  This new law will require you to file 45 State Tax returns as well, as most B&Ms easily meet the $500K threshold. Enjoy the pain.

Is there a better solution?  You bet.   I have been advocating for years to have the CC Processors collect and remit Sales/Use Tax directly to the States (States pay related fees).  B&Ms as well as online pay fees for plastic money, and that fee includes what customers pay for Sales Tax.  Take a store that does $10M/qtr. @ 6% Sales Tax, that’s $600K you pay the State.  Ok, so your merchant account is set @ 2%.   That’s $12K in fees for that $600K you owe the State, but that $$ does not belong to you or the CC Processor … it belongs to the State DOR!  Yet but another out of pocket business expense retail must endure.  Just look at the advantages of the system:

~ States get instant funds
~ No privacy issues
~ Lowest cost of all software issues
~ Paperless for retail
~ No exemptions required
~ Minimal law change needed to enact.

Before B&Ms cry ‘unfair advantage’, remember that this is the same rally cry made when a WalMart/Target moves in next door. WalMart/Target and yes, even Amazon are behind this big push to force Sales Tax collection on the Internet.   Big lobby $$ are pushing the effort as well.   Don’t be fooled.   This is all but another effort of big business attempting to put the squeeze on small business. You have been warned.

Announced 10/12/2011 Congressman Steve Womack (R-AR) and Congresswoman Jackie Speier (D-CA), announced in a Wednesday press conference that they will introduce the bipartisan Marketplace Equity Act (MEA). link

Details of the Bill have not been published yet, but according to Politico it allows States more flexibility than what is proposed in the MainStreet Fairness Act that at minimum would mean higher compliance costs to online retail.

Here are some of the problems as I see it:

~ Tax to be collected based on buyers address, provided the State has online software to figure correct tax.  So this means what?  I need to register with all 45 States and get a Tax ID, pay any fees for permits, then integrate 45 different software programs into my online shopping cart?  That alone is a logistics nightmare.

~ Exemptions for small sellers:   This bill would allow the States to determine exemptions for small sellers. Main Street Fairness allows a Board of Governors to set the minimums (currently @ $500K gross Sales).  Which plan is better?  Deal with one authority, or the 45 individual States with untold number of rules and exemptions. Even so, to get an exemption under MEA, one must file with all 45 States to receive the exemption.  Again, un-necessary paperwork.

Would either bill solve the problem of uncollected Use Tax?  Only partially.  It is confusing to a buyer when one website charges Sales Tax and another doesn’t.  Buyers have no idea a small seller may/may not be exempt, so is the Seller breaking the law or not?  You buy online, you owe Use Tax, and those that don’t?  We then we know who is the true lawbreaker here.  Sadly, States have made little effort to inform the public that such law exists.  Recent studies have shown that 60% of shoppers are unaware that Use Tax law even exists.

A better plan:

As stated before in other blog posts, it would be better if the Merchant Accounts (Visa, MC, PayPal, etc.) collected Use Tax @ Point of Sale and remit directly to the States (States pay related fees).  It’s a win-win for all:
~ States get instant funds

~ No Privacy Issues

~ Paperwork free and reduces costs to merchants

~ System would work for B&Ms as well as online

~ No exemptions needed. Consumers would file for exceptions @ tax time.

Dear Tennessee Governor Haslam,

I read in an article today http://www.commercialappeal.com/news/2011/jul/06/haslam-willing-take-lead-internet-sales-tax/
where you plan to take a leadership role with other Governors in addressing the Internet Sales Tax issue.

To be frank Governor, lawmakers, both at the local and State level have gone out of their way to make Sales Tax laws complicated, cumbersome, and difficult to comply. Sales tax was invented in the 1930s during the Great depression. Yes, States were cash strapped then too. It’s fine to charge Sales Tax for one store with one location, and one tax rate. It was never designed for mail order, or today, the internet. It’s fine for a local community to vote for needed funds to build a new firehouse, a community center, or other specific need for that community. Simpler still is the setup to levy that tax. Again, the stores within that City/County simply add that tax value to the cash register. Those that live within the tax district pay extra tax; those that live outside the city don’t.

Here is the problem with online sales, even with websales from TN sellers to TN buyers: Does the buyer live inside of the city limits, or outside the city? Do they owe 6% Tax, or 5% Tax? Go by the zip code you might say. Sadly, almost all cities in the US have more than one zip code, and most zip codes divide the city/tax district. Yes, a zip+4 address is more accurate, but does TN Dept. of Revenue ave such a database? Does it have software to accurately determine tax rates for TN Buyers? I live in SC, not TN, so I don’t know, but I can tell from the research I have done that States have no such system. They may have PDF files and spreadsheet files to show tax tables, but that is a system that is unacceptable for website shopping carts.

Let me give you a real example: Myrtle Beach SC imposed a 3% tourism tax. Problem is, Myrtle Beach has 3 zip codes and the city divides all 3, so does a buyer with a Myrtle Beach address owe 6% tax or 9%? I called the City Manager, and was informed that on the MB website was an excel spreadsheet where I could figure the correct tax. Sure, that will work for a buyer shopping in their PJs @ 3am. Obviously, local lawmakers were clueless, or forgot about the problems faced from Internet Sales. Worse, in SC, it is illegal to overcharge Sales Tax, so I am unable to charge 9% for all MB Sales.

I’m sure TN faces the same complications. Across the US, there are 8,000 such tax districts. Why should I as a seller even know or care that a tax district 3000 miles away decided to have a voter approved fountain built in town square to celebrate Earth Day?

And then a comment I read in an article the other day:

http://www.bizjournals.com/sanfrancisco/blog/2011/07/amazon-tax-bad-for-big-boxes-bad-for.html

Then consider that in some states a Snickers is considered — and thus taxed as — a candy bar while a Nestle Crunch bar is not considered candy because it contains rice. Some states tax fruit juices differently based on just how much fruit is in the drink, and not all states tax clothing.

Clearly, there needs to be commonality in tax law, and I applaud SSUTA for making that effort. Still, even they do not address the 8000 tax districts, none of which are defined by zip code.

Here is another problem. Assume you succeed with Congressional action that addresses Quill v ND and online is required to collect out-of-state Sales/Use tax. Lawmakers will see the burden placed on small business and declare minimums of gross revenue before tax must be collected. How fair is that to consumers? Some websites collect tax, others don’t. Are the sellers dodging the law? Cheating? True or not, the buyer is still obligated to pay Use Tax. Either way, it leaves a lot of tax fruit hanging on the tree.

Want 100% compliance? I have an easy solution and it’s a win-win for all. Visit my blog for more details www.thedumbdog.com/blog
It would take minimal Federal Law to enact.
Have the Merchant Accounts (Visa, MC, AMEX, PayPal, Authorize.net, Google checkout, Amazon Payments) collect the tax @ POS (Point of Sale) and remit directly to the States (States pay related fees).
~ States get instant funds.
~ No privacy issues
~ Huge savings in collection costs ($0.02/transaction for a MA v $0.75 or more for small sellers)
~ $$ only transfers once v 2 or more times for online to collect then remit.
~ States collect from ALL buyers, no minimum seller thresholds required.
~ System would work for B&Ms as well as online.
~ Minimal shopping cart integrated coding required.

Yes I know, lawmakers hate the word simple, but this is the best way to collect Use Tax that buyers now are obligated to pay … and I think minimal Federal law would be required to make it all come together. Maybe you can suggest to TN lawmakers to explore the possibility to have the MAs collect/remit in your State. I would make news, and hopefully open the doors to precedence that would still allow Quill v ND to remain intact. Not being a lawyer, I can’t address that issue. Maybe you can.

Want B&Ms to get on board and support the idea? Consider this: Take an average Wal-Mart that does $10M gross sales per Qtr. @ 6% Sales tax, that’s $600K. If a merchant account gets 2% fees to xfer money, out of that $600K, that Wal Mart pays $12K in fees …. but that $$ does NOT belong to Wal-Mart! It belongs to the State DOR! Yet another out of pocket expense B&Ms (and online retail) we must endure. LOL. (Laughing Out Loud) Who said life was fair, but lawmakers could help retail by lifting this burden we endure.

King for a day? I would only request online pay a State’s base rate. Simple is what is needed. Still, as an alternative, allowing the MAs to collect tax is the best cost efficient method to get the job done.

Thank you for taking the time to read my letter. I have been following the issue and offer alternative views in my blog. Feel free to take the time to read/view/comment. http://www.thedumbdog.com/blog I look forward to working with you to resolve this issue.

And I need to pay Sales Tax?????

What about this online sales tax mess?

The history of Sales Tax goes back a long way, but was invented in the 1930s during the Great Depression. Yes, States were cash strapped then too.

Over time, local lawmakers saw a need to grow local economy. It could be a sports center, a convention center, another firehouse. City/County fathers propose a tax, hold hearings, and in many cases, let voters decide if increasing Sales tax locally to raise funds is worthwhile to fund the special project proposed. That’s what local lawmakers do. Work to find ways to improve growth and community well being. In some cases, reducing or giving special tax breaks to bring in more wealth and goodwill. I’m not here to debate whether increasing/decreasing tax rates is a good or not so good thing, it’s just what lawmakers do.

Works great eh? The community gets taxes from those who buy goods from those tax districts. Even when a city is divided by a zip code, only those residents who live within or shop in the city pay the extra tax. Those who live or shop outside the city don’t. That’s called fair and equal, and everyone should be happy, right?

Now enter the Internet.

Sales taxes designed for one store, one location, and one tax rate. It was never designed for mail order, or today, the internet.

Here we are again in the times of a depression, and again, States are cash strapped. Solution? Invent new tax! While it was simple back in the 30s to do just that, in today’s world, technology, a new business model (internet sales), and special tax districts with their own special rules and conditions demand an equally demanding solution.

Why invent a new tax? States now have laws on the books to collect Sales Tax from purchases made out of State. It’s called Use Tax. Consumers who make out-of state purchases are required by law to remit to the State all State and Local Sales Taxes due. Who better to do that than the consumer? After all, they know what the local tax rate is … while the company they bought from 2000 miles and 10 State Lines away would not. How is it fair for a company in another location be required to know that city fathers in your local town want to build a fountain in town square to celebrate earth day?

Story after story after story that I read talk about Use Tax and how local and State residents are required to pay said tax, yet few rarely do. Is it really that hard for State DOR (Dept. of Revenue) to do so?. First, few online customers know that such law exists. Second, in most cases, the collection process involves a line item on the income tax form … like the general public would really bother to read the requirement or just enter $0 on the form (or lie about it). Third, bureaucracy demands that to correct flaws, laziness, or inability to enforce existing law demand writing new law. That’s normal for politics and lawmakers seeking re-election, but that really practicable? What has the State DOR done to encourage enforcement? They could advertise using TV, Billboards, even Google and H&R Block. They could develop software that online could integrate within shopping carts to inform consumers that Use Tax is owed to the State. There are many solutions and tools available to inform the public, yet State DORs do little to educate the public.

Alternatives are new law. Often written badly, many are unconstitutional, or are not online/offline friendly.

What stands in the way?

First, in 1992 we have a US court ruling Quill v ND that prevents States from collecting Sales Tax from a business unless they have a physical presence within a State. This means for example, that South Carolina cannot force a company located in North Carolina to collect S.C. Sales Tax. Want to add to the confusion? There is no commonality of the wording of the law from State to State. For example, some States want Sales tax on shipping. Others don’t have that same requirement. Some local communities want special taxes applied for goods based on destination, others want it for goods on items based on sellers location and a third group requires it both ways!!! The list goes on and on … over 7500 districts and requirements which grows each year across the US.

Some States decided they wanted to rewrite nexus definitions. To do that, they decided that advertisers who get a commission from placing ads on their websites or blogs constituted a ‘business presence’ because they received a few pennies from a commission sale. In spite of the fact they sell no physical goods, these laws assume they are a paid employee. Online giants like Amazon.com and Overstock.com disagree. They challenged the first State (NY) [ Amazon.com, LLC v New York State Dept. of Taxation & Fin. ] to enact such law (still awaiting a decision @ this writing) and severed affiliate ties with other States that enacted similar law. Not only did those States lose Sales tax revenue, they lost income tax revenue as well when affiliates lost an income stream. REAL Data not only proved negative results, there have been several States that have proposed laws to repeal previous legislation.

Lawmakers are making a new rally cry. ‘Unfair Advantage’ and ‘Make it a level playing field’ are the new battle cries to revise Sales Tax laws. Local retail Brick & Mortar (B&Ms) are joining the cause, as they have to collect Sales Tax while online retail out-of state does not. While B&Ms claim an ‘unfair advantage’, isn’t that the same rally cry they made when Wal-Mart/Target moved next door? There really isn’t an unfair advantage, as consumers really owe the same tax that a B&M collected.

Beware of the rally cries lawmakers make. Amazon, for instance, struck a deal with South Carolina to build more than one distribution center. To build in the State, lawmakers struck a deal with perks. Free land, property tax discounts, employee tax credits, and the the biggie, nexus exemption from collecting Sales Tax for In-State Sales. They are not alone. Tennessee and Indiana have made similar deals, so that rally cry they made about ‘unfair advantage’? They just threw local B&Ms under the bus. It seems that jobs are more important than a ‘level playing field’.

Even if Congress addresses Quill v ND, and Member States increase under the SSUT initiative, there will never be a ‘level playing field’ as long as lawmakers make backroom deals.

Sales Tax Loophole?  I don’t think so!

I found an op-ed article in the Minnesota Spring Grove today claiming there is a tax loophole Amazon.com is exploiting. Really? Prey tell what loophole is that? The article does not explain what that is!  Could it be that Amazon.com is following State Law and is not obligated to collect Minnesota Sales Tax for Out of State purchases?

From the article:

“When online-only stores don’t collect sales tax, the burden is passed on to consumers, who are legally required to record, report and remit payment when they file their annual tax returns.  This surprises and confuses most people.”

Where does the confusion come from?  Use Tax law is clear.  You buy from Out of State, you owe Use Tax.  Unclear for consumers?  While I can see that part of the argument, the problem lies in that State lawmakers love to write new law, they rarely do anything to educate the pro/cons of such legislation. States should do a better job of educating the public. Use TV ads, post the law on billboards, even tell H&R Block. Consumers are unaware of existing law. Honest buyers will pay Use Tax. This is a consumer issue, not one for online retail.

Time for a review of Sales Tax policy:

State Sales taxes were invented in the 1930s during the great depression.  Yes, States were cash strapped back then too.  Sales tax works great for one store, in one location, with one tax rate.  It was never designed for mail order, or today, the internet.  That said, it is easy for City fathers to enact local tax rules .. for instance, a local sports complex to promote business income, at a cost of 1% Sales tax to build a facility. Voted by the local public, it is a great thing (or not) for the community, but it was voted on and approved.  Fine for the local community, but the tax rules apply to that city alone. Problem is, that city as 2 or more zip codes and the city divides all zip codes.

Ok, so the Wal-Mart in that city charges 7% .  The Target store located outside of the city limits, but shares the same zip code, charges 6%.  Both are charging the correct tax.  As stated before, one store, one location, one tax rate.

Now online comes into play. How is an online retailer to know if a buyer lives inside the city limits (7% tax) or outside the city (6%)?  This is a problem online faces everyday both for in-state as well as out-of-state sales. Local buyers know local law far better than an online website located 200 or 2000 miles away.  Worse, the States Revenue Department offers no software or online data to pinpoint a buyers exact address or proper tax rate.

There are many more points to consider why online should not collect Use Tax on behalf of the States, as I will explain later in blogs to come.

So much has been written about new tax laws States are imposing to gain revenue from buyers who fail to voluntarily pay Use Tax. The primary argument bloggers and syndicated columists use is that ‘It Levels The Paying Field’ between Online Retail and a Bricks and Mortar [B&M].
Lets dispel that MYTH
The term was invented by Legislators, primarily because they see a missing piece of the tax pie, brought on by the lack of enforcement of existing Use Tax law. You buy something online, the buyer is obligated to pay that States’ Sales Tax [Use Tax] on the product. It’s a line item on your yearly tax form that most consumers eith ignore or lie about when filling out the form.
What about this ‘Level Playing Field’ argument? Lets look at the facts and advantages/disadvantages of online retail vs. B&M:
~ A B&M does not share the same tax load on a community that online retail has. A B&M uses more police, fire and sanitation services than online. Should online be required to subsidize a B&M’s heavier tax burden?
~ What law prevents a B&M from selling online?
~ Both online and a B&M collect Sales Tax for in-state sales.
~ You can’t touch or feel a product online, and answers to questions can take days. Not so in a B&M store, and that sales person’s pitch often is the dealmaker for you to leave the store with product in hand. … Advantage: the B&M.
~ For heavy items, the shipping often offsets any cost savings online retail may offer.
~ For lighter items, even with Sales Tax included, online can still be cheaper, because they do not have the high overhead a B&M pays. Making / adding Sales Tax to an online purchase will not match prices Advantage: Online
~ What about the 5 States in the US that have no Sales tax? How are the pundits arguing that advantage/disadvantage, if there is one?
~ Shopping online is GREEN. Less travel, no standing in line, shop and buy @ 3AM in your PJs, and the delivery services still travel XX miles per day, whether delivering to that B&M with resellable goods, or to your front door. By buying GREEN, that alone should deserve a tax (carbon) credit, shouldn’t it?
Should States collect Uales Tax? According to existing law, yes, of course! The consumer is obligated to obey the law and remit lawful tax. That is a burden of the consumer, not the online seller. If States wish to ‘level the playing field’, they need to enforce existing law first before inventing new, bad, unconstitutional law like this affiliate tax passed in NY, RI, NC, and CO.
Unenforceable they [legislators] say? A) as an online retailer, that’s not my probem. B) There is a solution. They could get the Merchant Accounts (Visa, MC, PayPal) to collect the Use Tax at the point of sale, then remit the Use Tax directly to the State DOR, but that plan is too simple for Legislators to understand.

The US Congress Judiciary Committe will hold hearings on Fe. 4 2010 concerting the role of Congress in defining the role of Defining Nexus. Here is the link to the Committee http://judiciary.house.gov/hearings/hear_100204.html As an online retailer, I urge other sellers to write to the parties involved an express your views.

~ The ‘Amazon Tax’ law imposed by the State of New York is unconstitutional, and violates States Rights. The definition of nexus in that law is an invention, not reality.
~ If the Streamlined Tax folks had their way, businesses would be forced to collect and remit sales tax from over 8,000 tax districts which are not defined by zip code. How would YOU like to file quarterly tax reports for 45 States, be subject to tax audits, and need to be knowledgeable for what is eligable for Sales Tax and what is not?
~ Small business cannot afford to do the paperwork, either by hiring extra staff, soliciting a 3p provider, or cover the extra costs involved. This is legislation that will put small business out of business.
~ States have existing laws on the books to collect Sales Tax now It’s called Use Tax. Make that mandatory, rather than voluntary as it is now.
~ Incorporate the Merchant Accounts (Visa, MC, PayPal) to collect Use Tax and remit directly to the States. States would pay the related fees, get instant funds, and it would reduce paperwork for all involved.

Lastly, GET INVOLVED. We as a country need to let our legislators know that proposed law is too much of a burden on small business.

It’s simple. How do you keep up with over 8000 Tax Districts that are not defined by zip code?

Lets forget about SST for the moment and look at what is going on in your State. Here is an article I ran across the other day. http://tinyurl.com/yel67vg It seems a customer bought an item from QVC. QVC charged her 9% sales tax because she had a Myrtle Beach, SC zip code. While Myrtle Beach has a city tax of 3%, it is added to the South Carolina base tax rate of 6%. Problem is, the customer does not live within the city limits of Myrtle Beach. When I contacted the City Manager of Myrtle Beach, I was told that there are actually 3 zip codes that are touched by the city. Unfortunately, all 3 zip codes also have areas within them that are not subject to the city tax. So now we have an angry customer, a vendor who is attempting to follow the law, and a demanding city that takes no responsibility for it’s poor planning.

The City Manager’s solution to collect the correct tax? Ask the customer where they live before the purchase is made. Oh sure. I’ll be sure to do that for that 3AM automated online purchase.

I don’t mean to be picking on Myrtle Beach. This is a State Wide problem, and I’m sure the same problem exists in your State as well. The SC DOR has a State Zip code PDF file you can download. While the information is useful, it is also incomplete. There are over 40 instances of counties and cities that share zip codes, and no way to pinpoint exact locations to match the tax rate. To make matters worse, some counties want additional tax for goods going in, others want it for goods going out, and yes, still others want tax for goods going in AND out.

Legislators have shown that while writing law, they completely forgot about online retail and the way sales information is processed. It is almost impossible to asses and collect the correct Sales Tax. Most online venues (eBay for example) are setup to collect only one tax rate, usually the State’s base rate. Website with shopping carts are mostly setup the same way. WHile there are outside vendors who will process this information for you, the processing charge for this service is cost prohibitive for small business, and without 9 digit zip code data, is impossible to accurately calculate.

So what are the solutions? The easiest and most painless it to exempt online purchases from local option sales tax. Online businesses do not require the same tax load on a City as a Bricks & Mortar store (Fire, Police, Sanitation, Roads) so the argument of ‘fair share tax’ is nullified. There are other options. Above all, I would like to see consistency State Wide with the tax code. Requiring local tax for local needs is fine. Leave the collection to the locals and exempt outsiders from that tax. That’s the fair thing to do.

The system in place now is an extra burden on online retail and consumer alike. Since charging too much for tax is against the law, it is safer to charge the consumer the base rate, and pay the State DOR the difference out of pocket. But is that fair? Well, it isn’t for businesses.

Why won’t SST work? I just gave you one example. Multiply that times 8000 tax districts across the country in 45 States, and these districts are not defined by zip code. Just wait for your first Sales Tax Audit from an out of state investigator.

In response to LA Times article – http://tinyurl.com/kqvbeo  – The Internet isn’t tax-free

As an online retailer, I oppose any legislation to collect out of state sales tax.

The LA Times Editorial claims the Supreme Court decision (Quill vs. North Dakota 1992) is outdated.  I say it preserves States Rights.

They also claim there is a disadvantage to the B&M (Bricks & Mortar) stores. Lets look at the differences:
~ A B&M does not have the same tax load on a community (police/Fire/Sanitation service, etc.) that an online seller has.
~ You can’t touch or feel a product online. Answers to questions via email can take days.  Not so in a B&M.
~ What rule or law prevents a B&M from selling online?
~ For In-State sales, both the B&M and Online Sellers collect and remit Sales Tax.
~ A B&M does not charge separate shipping charges, for that Lazy-Boy chair, that could be $100 or more for shipping.
~ Shopping online is greener. No travel, no gas consumed, no waiting in line.  Shouldn’t that deserve a tax advantage for helping to save the planet?

The disadvantage I see is that the Legislators, not the B&M, sees a lack of tax revenue.

LA Times claims it is too difficult to collect Use Tax from the buyer.  As an online seller, my claim is that it is too difficult to collect tax for Out-of States sales.  There would be 45 State returns to make each Quarter, and it would need to address over 7500 tax districts, which are NOT defined by zip code.  It is impossible for me on the East Coast to know what tax law is required on the West Coast. Example: Is Sales Tax charged for shipping or not? In some States, it is, in others, it’s not.  And what about the tax audit for an innocent mistake?  You expect me to travel 3000 miles to present my case to the California DOR over a $100 tax bill? Enforcing collections of sales tax is so complicated, it would put most small businesses out of business.

A simpler solution would be to enforce existing law. … Use Tax.  Make it mandatory rather than voluntary as it is now, and it is simple to do.  Have the Merchant Accounts (Visa, MC, PayPal) assess and collect the tax and remit directly to the State (States pay related fees). eBay, Amazon and PayPal have the data, and software is available.  Shopping cart info can be easily modified to upload the correct info to the merchant account. In this way, sellers would not need to know if shipping, or clothing, or other items have one special tax rate or none at all.

Best of all, this system would cover those buyers who travel out of state to buy goods (to save on Sales Tax) from a B&M.  The billing/shipping info on the credit card would supply the information to assess the correct Use Tax.  It would be the responsibility of the consumer to challenge any incorrect tax assessed, not the seller.

The LA Times wants to do away with old law and write new law.  History has shown that Legislators are unable to write simple law, rather than enforce existing law. Worse is that they are clueless about online retail and how it works. My solution to collect Use Tax clearly is the best answer. Of course, we know why they won’t. They prefer to be re-elected and not deal with more wrath from consumers (voters).