The Main Street Fairness Act – Fair? Hardly!
30 Apr 2009
The Main Street Fairness Act – Fair? Hardly!
I am an online retailer on eBay, Amazon and my Website for over ten years. The Main Street Fairness Act soon to be presented to Congress has me very concerned and a call to action is needed.
A thoughtful article was written in Auctionbytes. It talks about the whining and complaining over lost State Sales Tax revenues, and how Government wants to ‘fix’ this with new Federal mandates. I have written both legislators mentioned in this article, as well as the Speaker of the House, and have received non-answers from all of them. I have several questions, and solutions to this problem. It would be nice to have SOMEONE who would listen to ideas and have a dialog of exchange. You, the reader, can help.
~ What about Use Tax? All States have them, yet fail to enforce the law. By simply doing this, they would not need to introduce new legislation.
~ Trying to figure tax for all the tax districts (now at over 5700) is impossible for small business. Hiring a tax service @ $30/$50/mo is an added expense that as a small business, I can’t afford.
~ What about States that have no sales tax? Does this put sellers in those States to have a competitive advantage? No, because the Use Tax even the playing field.
~ Amazon does not collect sales tax except for high volume sellers, and those are few. While it is illegal in some States to sell items as having tax included, Amazon blatantly ignores the law.
These are but a few of my concerns. Now I do have a solution, and it is a simple one, yet getting others to make enough noise for legislators and others to listen has been an uphill battle.
When I have an In-State sale, I have to charge sales tax. Since I have a Tax ID#, it is my duty as a tax collector for my State to do so. When my merchant Account (Visa, MasterCard, PayPal) collects money on my behalf, they also collect State sales tax.
Say I sell an item for $100. Sales tax is $6. Now if the merchant account charges me 3% to transfer the monies, this includes the $.18 fee on the sales tax. But wait a minute. That $.18 does not belong to me … it belongs to the State DOR! That is an additional out of pocket expense for my business. Look at a local Wal-Mart that does $10M sales/yr Sales tax of 6% = $600K Even at a discount of 2% for merchant account fees means an additional business expense of $12,000 for monies that does not belong to Wal-Mart!
That’s the groundwork. Now here is the solution:
Have the Merchant Accounts (Visa, MasterCard, PayPal, etc.) collect Sales and Use Tax and submit the funds directly to the State.. In turn, the States would pay the related Fees for collection. Let us look at the benefits.
~ States get instant funds.
~ Fair collection of Use tax.
~ The collection system is already in place, just add software.
~ Less law needs to be written.
~ Less bookwork needed by Small Business
~ Works for Brick & Mortar Stores as well as Online Sellers.
~ Many States offer a discount when sellers fill out quarterly forms. That fee could be waived if the Merchant Accounts would pay the State directly.
Personally, I am against the collection of out of State Sales Tax. The whole foundation of the idea is unconstitutional and violates the Tenth Amendment of States Rights. Having lawmakers enforce existing law is the best solution, but the alternative solution I offer is a great compromise.
Bottom line, the payment processors can easily collect and deliver the sales tax to the state’s department of revenue, without being collected by the merchant’s. This is using existing laws which aren’t enforced. Enforce them, there is no need for this onerous legislation that will cost as much as it takes in.
As I said, you, the reader can help. Talk about it , blog about it. Make a comment in this blog! Write to you legislators and Congress. Agree or disagree, but say SOMETHING! The last thing we need is for Congress to write bad law, which they are famous for.
Keith Yockey
25 Responses
2009 Apr 30
I agree whole-heartedly, Keith. The Supreme Court ruled this unconstitutional in 1992, but allowed the resurrection if the states would get in line, and congress would approve it. It seems we are headed in that direction.
2009 May 05
Keith your plan is the only one that I could see working. Whatever it is it has to be fair to all and then it could work. It cannot be put on the back of the merchant. All states must participate in it (to avoid the rush of Internet business’s moving to that one state to get out of it) and there needs to be one tax rate (its over 6000 now, which would be impossible for SMB owners to figure out).
The Federal Government is systematically going after one industry after another. Taking power and money as they go. This really concerns me. What will be next? This needs to be a state power but be uniform. It needs to be fair to all and then it will work. If the government puts this on the backs of small to medium business owners with multiple tax rates it will be crippling. Large Internet Business’s with a location in every state (Walmart for example) would be in favor of such a plan as it would get rid of competition online where they have not been able to complete.
So one tax rate, fair to all without giving more power to the Federal Government.
- Dustin
2009 May 10
Your site displays incorrectly in Firefox, but content excellent! Thank you for your wise words:)
2009 May 10
Funny, it was composed using FireFox
2009 May 13
Great point and very interesting food for thought. I’m not sure I have any clients I can replicate this with, but will bear in mind for the future. Regards
2009 May 14
I am the Executive Director of the Streamlined Sales Tax Governing Board. We, along with many others, are asking Congress to enact the Main Street Fairness Act.
Mr. Yockey’s plan might seem like a good idea, but there reasons why it doesn’t work. First, all it really does is shift tax collection from the retailer to the credit card industry. Why would they want to take on what is now done by retailers. Second, we asked the credit card industry many years ago if they could do this, and they said it isn’t an easy task to install the kind of software Mr. Yockey discribes. Third, the credit card industry asked us who returns the tax to the consumer if the consumer returns the property. The credit card company doesn’t have any of the information about the sale.
The retailer is the right person to collect the tax. They have all the information needed to collect the tax. Mr. Yockey currently collects sales tax for South Carolina and receives a small amount of money from the state for that service. What he receives probably isn’t enough, but he does receive something.
The Main Street Fairness Act will require states to reimburse Mr. Yockey for the credit card fee he pays on the sales tax, for the sales tax on his bad debts, and a reasonable amount for all the other expenses related to collecting sales tax.
It is not true that there isn’t software that to help retailers collect sales taxes. There are many companies that provide this service. With the passage of the Main Street Fairness Act the states will have to pay for that service.
If the use tax isn’t collected it requires your state and local governments to look for some other form of tax. Having the retailer collect the tax is the only viable solution.
2009 May 15
Thank you Mr. Peterson for replying to my blog.
There are several counterpoints to consider:
~ Credit card companies, like retailers, will avoid any additional expense for software, burden of transfers of monies, or extra bookwork that may be mandated as law. If I owned one of these companies, my first impression would be to say HECK NO as well. And that they complain it would not be an easy task to do? First, I was not the (can I say idiot?) lawmaker(s) that made it complicated in the first place. Second, as you pointed out, there are companies who have the software. Gee, a lot of big software companies lease software. Sounds like a simple solution to me.
~ Return of funds for refunds or chargebacks. By law, they keep records and can refund up to 180 days after purchase (and often do, more so now). Ask any retailer: They will tell you the CC companies keep the records.
~ Yes, I collect Sales tax for purchases made in-state to SC DOR, including the monies the merchant accounts collect on the actual sales tax. As stated in my blog, those monies do not belong to me, they belong to the State DOR, and is an added business expense that I, as well as ANY company that accepts credit cards, online or offline, shares.
~ I would submit that this is a wrong way to go about this. I don’t want a credit to be filed on a form. Better for the Credit Card companies not to charge for Sales Tax collected. Better yet, don’t allow the business of credit lose out on funds they receive now. The cost should be paid by the recipient of the funds … the State DOR.
~ Agreed, companies offer a service to collect sales tax in all districts. For a small business like me, this is a service I cannot afford. If that software were added to the Merchant account database, it would incur a minor or no cost for small business. CC companies already have this data.
~ I thank my State for offering compensation (3% to $3,000 max) for doing the paperwork when I make quarterly reports. I would gladly waive that if they would receive funds directly from the Merchant Accounts. That is a compensation for labor, and no where near covers the cost incurred when Merchant Accounts charge a fee for taxes collected. That is a bill I would like to see the State pay, and the added benefits of instant monies received both for Sales and Use tax, and also the reduction of under reporting, should be a system they would welcome.
The solution still is for States to enforce the law and collect use tax. Allowing Merchant Accounts/Credit Card companies to collect the tax and remit directly to the State (States still pay the fees) would be a simple way to enforce the law. They (The States) should shift the compliance from voluntary to mandatory, even if it brings wrath from the consumer. After all, the law is the law. If States do not wish to enforce it, than the law (Use Tax) should be repealed. Only then should new law be written to address failed policy.
Thank you again Mr. Peterson, for explaining your position and a desire to fix what is broken and attempt to bring fairness to the tax system. I stand behind the Supreme Court’s ruling of nexus and encourage my fellow online sellers to only collect in-state sales tax. Supporting State’s Rights is important. It seems your position of SST dilutes those very same rights.
2009 May 15
We have been discussing this very issue in a group to which I belong. One member brought up the topic that Scott previously addressed:
“Second, we asked the credit card industry many years ago if they could do this, and they said it isn’t an easy task to install the kind of software Mr. Yockey discribes”
I am pointing out that the internet/cyberspace/programming moves light years at a time. Asking “many years” ago certainly would bring a different answer than asking today. Amazon has the resources to tax in all districts. The credit card companies could buy the software from them.
This issue is certainly very complex with so many different taxing jurisdictions. I am from Washington State (no income tax), and I believe we have 238 different sales tax jurisdictions. Some split zip codes.
So instead of asking millions of small business owners to buy identical software to solve this use tax issue, you could ask 5 credit card companies. The states could pay the CC companies to purchase and manage the software. What makes more sense?
The already in place use tax would be enforced, and we don’t need new legislation. This seems like the simplest and best solution to me.
2009 May 19
How would the payment processors know what you sell, whether or not it is taxable, or whether or not the customer is taxable? All they know is that you sold something to one of their customers. They don’t know if you charged the correct tax. How much information would you have to give the payment processor for them to know how much tax to charge? How does that information get to the payment processor? Why would the payment processor want this responsibility when you already have it? Wouldn’t they also have to take over your current responsibility?
If the payment processor collects the tax and uses the credit card customer’s address it would completely change how the sales tax is charged. Today the tax is based on where the customer takes receipt of the product. Your idea would base the tax on where the credit card customer lives. I live in Nashville. Under your system when I come to your home town and have dinner the payment processor will send the tax to Nashville. But whose tax will they charge? Will they charge your home town’s tax or the Nashville tax. The simplest system for the processor is to know the tax where I live, but having them charge the Nashville tax doesn’t pay the fire fighters in your town.
The only software that exists today is for retailers. Tom should look at the software created by a good Washington company called Avalara.com. This stuff works, and it works extremely well. There isn’t any such software that works for payment processors. It would have to be created from scratch.
2009 May 19
My two payment processors, Authorize.Net and PayPal, have all the information needed. They know what I am selling by product name and part number (I could supply UPC code if needed), and they have both my billing address and the buyers billing address. If the buyer is an out of State sale, then Use Tax would be applied. If an In-State sale, then Sales Tax would be applied. A simple coding system would help differentiate what is taxable or not. That could also include no-tax information for items to be resold. Most will agree … tangible goods crossing State lines are subject to Use Tax. That is a burden on the consumer to pay, not the seller. The payment processor would assist the State charging Use Tax to enforce the law.
With you being from Nashville buying dinner at the Hyatt in South Carolina would but of coarse pay local tax on the food. That is not subject to Use Tax Law that I am aware of. Now if you were to goto the gift shop and buy a Teddy Bear for one of your children to bring home as a gift, then Use Tax would apply. That is, after all, only fair to the State of Tennessee, right? … And it is the law.
Yes. a) For Use Tax enforcement, it is necessary. I don’t want to know, nor do I care what tax obligation a customer in an Out of State transaction owes. b) In South Carolina, some counties want local option sales tax for goods coming in the county, some want it for goods going out of the county, others want it for goods going in AND out of the county. Worse yet, tax districts are not divided by zip code. That is a headache and burden I take up with my State DOR and Legislators, and should not concern you if you sold something to me online from Nashville.
Not true. Amazon is a payment processor and has tax software in place for it’s Gold sellers. Payment processors have more data about you (us) that contain every bill paid, spending habits, and statistical information that would make the IRS jealous. Avalara.com charges for it’s service. For a small business like mine, it’s another unaffordable expense. Read the problems associated with tax collection from a respected etailer on eBay (Gold PowerSeller), Amazon, and website sales, Skip McGrath quoted from his latest newsletter:
Lest you think this is not a big deal, let me tell you about our experience here in Washington State. So far we only have to collect and pay taxes on our in-state sales. (We also have something called a Business & Occupation tax which I won’t cover here.) Since Washington has a fairly small population compared to other states that doesn’t sound like a big deal. As it turned out, last quarter we only had 23 sales. In the past we could do our quarterly sales tax in a few minutes. We calculated our sales, figured out the sales tax, B & O tax, filled out a simple form and mailed it off to the state. The whole process took about 20 minutes. But then Washington changed the deal.
Washington has a state sales tax, but all of the counties and cities also have their own tax they add on top of that. In one county the tax could be 8% and in another county it might be 8.35%. So now, we have to figure out all of our taxes by street address, zip code & county and send each county their individual amount. For example, last month we had a $19 sale to King County. The city & county tax is 2.3% in addition to the state tax of 6.5%. So we had to look it up on the web, calculate the amount and send King County a check for .44 cents. And when they received that check some government employee had to log it in and deposit it. Boy that was really profitable for them. So this quarter Karen spent over three hours to report and pay taxes on a total of 23 sales we had in the state for a total of $26.10 that was sent to 11 different counties.
I thank you again for responding to my blog Scott, but there has to be a better way.
Keith
2009 May 20
I think we are confusing the issue slightly because we have: 1) Streamlined Sales Tax Governing Board, and 2) Internet Sales & Use Tax keith is proposing.
> Under your system when I come to your home town and have
> dinner the payment processor will send the tax to Nashville.
IMO, you would pay sales tax on dinner based on the local rate. Internet sales & use tax would not apply, since that requires card not present (CNP). Brick & mortars (B&M) operate on the card being present. The restaurant would operate as they currently have. I’m not sure why this point was brought up though… is this scenario even covered in Streamlined Sales Tax?
> ~ Works for Brick & Mortar Stores as well as Online Sellers.
IMO, Keith’s point about Internet sales & use tax working for B&M stores is actually not an accurate point. Internet sales & use tax would work because the payment processors has customer data on file. B&M are not required (in practice anyway) to collect this data when they authorize a payment.
2009 May 20
Scott: Point being, I would not be charging the tax, the processor would. “How would the payment processors know what you sell, whether or not it is taxable, or whether or not the customer is taxable?” Everything that I sell I assume IS subject to use tax. I suppose there could be a radio button on the payment processing page that says, “not subject to use tax.”
You brought up an argument about dining out-of-state. You are using the meal in the state, so you pay sales tax to that state. Same with hotels, rental cars, etc.
This proposed legislation seems like it is meant to put small internet retailers out of business by putting an onerous burden on them. It is favoring big-box retailers who already collect tax in all 50 states. In my opinion, it is anti small business, job creation and growth. It is unneeded and adds to the Federal power over States’ rights. It benefits WalMart, Target, Macy’s, and a handful of other major retailers.
Paying the payment processors for the software and time spent collecting the tax seems like a better direction. The “Main Street” retailers have the playing field levelled. The states receive the tax revenue, and it doesn’t shut down millions of small entrepeneurs looking to compete. Consumers have a choice.
Sincerely,
Tom
2009 May 20
One other comment. Nordstrom, Macy’s, WalMart, Costco, Amazon, Target, Starbucks, etc., all have software to calculate sales tax in all taxing jurisdictions. Any large company with multiple locations and presence in several states has the ability to accurately tax. They also have the resources and necessity to do this. This has already been developed, and we aren’t reinventing the wheel.
The states could pay for the software necessary to collect “their” use tax, which would be enforcing a tax already in place, just as they pay for auditors and undercover police to find tax scammers. They would be ahead in the long run. Visa, Mastercard, Paypal, American Express, et al, would run this. It would relieve the burden from the big-box retailers as well. I like Keith’s idea.
2009 May 21
Hi Keith,
I just wanted to relay part of the discussion we were engaging on our blog – because I believe it may be instructive for your readers as well.
First, regarding Merchant Banks as Sales Tax Management Services – This would certainly be a viable option for “atomic” transactions – involving only items with one possible tax classification. However, as I am sure you will appreciate, a majority of credit card transactions involve multiple discrete items, each with potentially different applicable sales tax rates (such as clothing, food ingredients, prescription drugs, digital audio works, etc.). The only way a merchant bank could handle such a diverse array of applicable tax codes would be through specific knowledge of all the items or services being purchased – this is not likely to occur.
Even if the seller swore to the merchant bank that all goods and services to be sold were only one tax classification (i.e.: clothing), the merchant bank would still not be able to confirm the intended destination of the purchase beyond the billing address of the customer. As an online seller yourself, I am sure you are aware that billing address and shipping address are frequently distinct and separate locations – and should billing address become tax determinative, it wouldn’t take long for sophisticated consumers to change their billing address to an offshore mail forwarding address. Of course, if the merchant banks were to modify their systems to also require shipping addresses be submitted for all card-not-present transactions this challenge may surmountable, although unlikely.
Costs to small businesses – This is our most sensitive and guiding concern. We also agree with you, that the current options available are all way too expensive to mandate upon small businesses (or large businesses for that matter). That is why we are building our Fed-Tax.net services, which will be completely free to implement for sellers.
Our contract with you is simple – you diligently classify each and every one of your products or services which you are selling (with a simple web form we provide), and we will calculate the appropriate tax rate (or exact tax amount, if you prefer), based upon your customer’s shipping destination zip code. We will do this completely for free, so long as you tell us whether or not your transaction completed.
Once fully operational (and SSUTA certified), our service will also prepare simplified electronic state-by-state sales tax returns on your behalf, and if you choose, we will even remit collected taxes on your behalf – once again all at no cost to you, the seller. We believe that the technology to do this is ready.
At Fed-Tax.net, we feel this is simply the right thing to do as citizens – for consumers, for sellers, and for the states.
2009 May 21
Thanks for your reply David.
Your solution has many great points, but there are still problems.
~ If States cannot enforce existing Use Tax law, it should be abolished before writing new law to cover failed policy. At least my solution has a chance of working and puts the burden of tax on the consumer rather than the seller. IMO one reason it is not enforced is that Legislators prefer not to hear more wrath from consumers. They do, after all, wish to be re-elected.
~ Off-Shore mail forwarding address. If it were to be true, it would be a very small number; even for those who have a Post Office Box in a different State. The shipping address, would always be the same. PayPal, for example, has this information and ties it to buyer/seller protection in case someting goes wrong and a claim is filed. There will always be tax avoiders. Google this subject and read blog comments. Many comments I have seen have stated they would shift purchases to only non-us sellers. How will SST or States collect Use Tax for those purchases? I haven’t addressed cash/check/money order purchases either, but those too could be hidden from being taxed. If the small number of ‘law-breakers’ turns out to be a large problem, I’m sure the IRS / State DOR would take action.
~ Your service shows promise. The downside is extra book work, yet another burden for business of all sizes. There is also a matter of security. Your company wants knowledge of my complete inventory. This information in the wrong hands could ruin many businesses.
~ Tax districts are not divided by zip code. In fact, there could be several tax rates within the same zip code. Greer, SC is a prime example. The County Line runs through the middle of the City, so on one side of the street, Sales Tax is 6%; across the street, it’s 7%. The only way to truly locate tax districts is with GPS (latitude/longitude location). My home address is a prime example. I live in one county, yet my zip code is for an adjacent county’s zip code.
~ Fees I pay my merchant accounts on tax collected are monies that do not belong to me, they belong to the State DOR. This is an additional out of pocket expense businesses pay. My proposal would shift that cost to the States. I would gladly waive the discount the DOR gives me now.
The right thing to do? My vote is less complication of law. Enforce existing law, or do away with it. Less tax and spending from Government would help too.
Keith
2009 May 22
Good afternoon Mr. Yockey,
Once again thank you for your considered response in our ongoing dialog. We would like to continue our discussion based upon your points raised, which we will again address in reverse order.
~ Regarding the merchant accounts and credit card processors – Credit card processors are there to authorize a transaction and ensure payment changes hands. Credit card processors do not know what you are selling – particularly not as well as you, the seller, does. As the seller, you are the party with the most knowledge about your products. It is this fact that makes you the most appropriate party to indicate exactly how an item should be classified for tax purposes. As Mr. Peterson points out, the contemplated Main Street Fairness Act requires states to reimburse you for processing fees incurred due to the tax portion of each transaction, which should satisfy your concerns on that matter.
~ Regarding tax jurisdiction sourcing – we agree that the traditional 5-digit zip code is insufficient for many tax jurisdiction determination purposes. Using a nine-digit Plus4 Zip Code is significantly more accurate. The US Postal Service also offers easy to use tools for address verification and Plus4 Zip Code determination. You offer a good point regarding using GPS for absolute jurisdiction determination, and there are quite a few options for automating address geocoding, which could easily be employed on our end for more complicated districts.
~ Regarding our service – thank you for your input! We were admittedly not very clear in describing our service, and we cannot go into great detail about our services because they have not been announced/launched yet. What I can say is a) our security systems, policies, and procedures are comprehensive, and b) we do not want to know anything about your inventory, but we do want help you ensure that your all of your products/services are accurately classified for tax purposes.
~ Regarding off-shore mail forwarding – we agree with you.
~ Finally, Regarding States’ use tax laws – these laws, and states’ enforcement efforts are still valid and functioning under many circumstances – except online. Current use tax legislation was devised in a pre-Internet context, well ahead of our current reality. SSUTA holds forth the promise of that which we are all seeking – clear tax rules with minimal administrative burden. While we cannot speak on their behalf, we feel the herculean achievement of the Streamlined Sales Tax Governing Board (and its numerous constituents) has been the development of a comprehensive and thoroughly documented standardization of taxation rates and classification guidelines. SSUTA does not anticipate that each and every individual seller will engage in the cost and complexity of implementing all the technical aspects of compliance, rather they have established certification procedures to allow organizations (such as ours) to go “the last mile” in automating the systems between the sellers and the states.
As always, we appreciate your ideas and your enthusiasm for coming up with an appropriate solution.
2009 May 23
Thanks for your reply David.
This whole matter is turning into a complicated mess.
~ Yes, a nine digit zip code would work, but who uses it? I can’t speak for other retailers, but I can talk a little about data from my business. Since 1/1/09, I have processed ~ 2,000 orders. They include sales on eBay, Amazon, and website sales. Of those, less than 15% have 9 digit zip codes in the shipping address. So we are going to tell the buyers what? They need a complete zip code before checkout? With a world full of ID identity theft, and a fear of Big Brother looking over your shoulder; asking consumers of more information than they perceive as legitimate WILL drive away sales. And BTW, I don’t know my 9 digit zip code … do you? Sure, you can look it up on the USPS website, but that is time consuming, and it would need to be done BEFORE the invoice is sent and billed … again, another loss of sales in the real time 24/7 internet world. And no, I don’t want to hear that I need to buy more software to accommodate clueless legislators. While GPS location might work, it also is too complicated to get up and running. Of course, there is another option … put bar codes on the buyer’s forehead, or an IF tag under the skin (Nah … scratch that … too Orwellian)
~ About Merchant accounts. My guess is you have never sold on eBay or Amazon. They both contain every detail of a transaction, whether it be new, used, food, clothing or general merchandise. My Merchant Account (Authorize.net) has a coded section for Sales tax, so the proper tax rate can be supplied, and they collect it on my behalf. All I’m asking is that they remit it to the States directly. That saves me and the State time and $$.
~ Yes, Mr. Peterson talked about the States reimbursing the fees on the tax. Of course the final wording has not been written, but assuredly this would not be a check in the mail, but rather a ‘credit’ to be filled out on a form. In the ‘We Love Paperwork’ world, this seems to be a natural way of life. I question whether I would believe this part of the proposed bill.
~ Use Tax Law. It applies to Internet Sales too. I know of no State Law where this type of transaction was excluded. The problem lies in the fact it is voluntary … a line item on the tax form we all fill out each year. … and taxpayers either ignore or lie on that line. Those that do pay are CPAs and accountants. Well, maybe a few more, but it is a very unreported tax. You claim it is valid and functioning? Again, I ask you to Google “Massachusetts Sales Tax” (news articles, blogs, etc.) and read the comments. See how many Mass. residents claim to goto Sales Tax free New Hampshire to purchase goods. Clearly they are breaking the Use Tax Law of Mass. Making the law mandatory rater then voluntary makes more sense than writing new law. Lawmakers prefer not to do this for fear of the wrath of taxpayers (voters). They prefer to be re-elected … so writing new law is easier for them.
The more I look at the problem, the more complicated it gets. I still feel my solution is a workable one. Retailers and Merchant accounts can work together to collect and remit fair tax to make Government (along with consumers and small business) happy.
Can we get the whole plan down to 25 pages or less? Can I file a form on 1 page or less? Better yet, can we get the States to enforce law rather than make new ones? Businesses are hard enough to run now. Adding this or that to what we have now will force many to close.
Keith
2009 May 28
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2009 Jun 04
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2009 Jun 05
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2009 Jun 05
One question I haven’t seen addressed is: Is it truly simpler for all the small (and large) internet businesses in this country to charge 5,000 – 7,000 separate tax rates (which might even vary inside an order, depending on the items in that order), than it would be to do an average rate per state, and then the state could allocate the funds to its 100 or so tax jurisdictions, perhaps via a population-based method?
50 tax jurisdictions would not require complicated zip code / tax subscriptions. So we could even charge the highest tax rate for each state, and come out ahead compared to sending 100s of 44-cent checks to various cities and counties.
I worry that many small-business websites won’t have the processing power or bandwith to handle calculating or requesting data for 5,000 – 7,000 separate tax jurisdictions (especially if they also have to access a complicated mixture of “which items are taxable in which locations?”).
For Washington state, we use Avalara and it works fairly well – but when severe weather or other issues have downed their site, our online store order importing “hung” every time it hit a WA-state address.
Order processing was smoother and faster when we could apply our local WA sales tax rate instead of having to access Avalara’s website for every taxable WA transaction.
David,
The software to classify each and every product for appropriate tax rate sounds useful. But once again, I can forsee server processing or bandwidth issues. We’re not a huge company, but we have a lot of products: nearly 20,000 small craft components, made from a wide variety of materials. Are hooks-and-eyes or rhinestones destined for apparel taxed differently than the same product destined for jewelry? And is a beadazzeled belt apparel or jewelry? And is that only in some states? Seems like we’ll need an extra 50 slots in our database for each product, to note which states it is taxable in – and hopefully there aren’t items that are taxable in only certain counties. If so, I (honestly) wish you & the rest of this country much good luck on simplifying or unravelling the apparel, food, etc. taxation rules to make simplified taxation possible!
Also, our online store program does not auto-complete the customer’s address. If they give us just 5 digits, our online store doesn’t go seek out a +4, so the sales tax returned might not be authorized accurately — it might be higher or lower once we verify the address with our in-house processing system. (However, it’s true that if the customer’s zip is associated with multiple taxation zones, then Avalara’s software asks them to choose from a short list — but that list includes post office “zones” that the customers haven’t ever heard of, which makes us look a bit loopy to some of them – and I had a case yesterday where the customer picked the wrong zone from the list, so their tax returned about 50 cents lower that reality. An under-auth of even a few cents, if we don’t notice it and handle it special, will cause this customer the “dreaded double hold” on their debit card funds.)
It sounds like it might become VERY important that our online store programmers find a way to hook up the checkout to something similar to CASS software, to format the customer’s address & add +4, and then ask the customer to verify that this address still looks valid to them — sometimes when you run an address through address validation software, it returns a very wacky result, so it would be nice for the customer to get a chance to ok it and edit if necessary.
But that’s one more step towards cart abandonment… another thing that doesn’t spur the economy and make the states or us any money!
And then onto Use Tax… For our customer base, Use Tax seems like another matter entirely: Our wholesale customers buy our components and turn them into finished goods which they sell. Occasionally, they also re-sell the components un-altered. Use tax comes into play when they purchase single tools or single books for Personal Use rather than to sell. Only our customer knows for sure if they are going to Use the item to make their handcrafts, or sell the item to their own craft customer — so for these items we inform them about Use Tax so they can report it for that item if/when appropriate.
2009 Jun 12
Great post! I’ll subscribe right now wth my feedreader software!
2009 Jun 13
Amazon CURRENTLY has the ability to assign the appropriate sales tax rate across ALL product lines sold on their site.
2009 Jun 15
David:
I don’t buy it. It is already done. Amazon requires me to list in a sales tax category. They collect and remit.
The software industry is attempting to sign up millions of small entrepreneurs on monthly subscriptions. Boon for software companies writing the programs, boondoggle for small companies paying the freight. I am exiting this business sooner rather than later for ill-explored solutions such as you pose.
Make the states pay the freight. I employ 7 people. When I close, soon, there will be seven less jobs (8 including me). Maybe GM will make a radical comeback??? I don’t want to deal with this, and won’t. This plan will kill decent paying jobs.
Sincerely,
Tom
2009 Jun 17
Polly:
I don’t know you but should. tking@oz.net. 206-232-3340
Thanks,
Tom King