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).

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

http://www.thedumbdog.com