House Judiciary Committee Releases Principles on Internet Sales Tax 9-18-2013

Fortunately/Unfortunately, the Marketplace Fairness Act doesn’t meet any of the Judiciary committee’s principles on what would constitute an acceptable legislative approach to Internet sales tax.

 

http://judiciary.house.gov/news/2013/09182013.html

 

House Judiciary Committee Releases Principles on Internet Sales Tax

Washington, D.C. – Today the House Judiciary Committee released basic principles pertaining to the issue of Internet sales tax. To develop these principles, the Committee received input directly from taxpayers, industry and trade groups, and representatives of state and local governments. The principles are intended to guide discussion on this issue and spark creative solutions. Chairman Bob Goodlatte (R-Va.) and Subcommittee on Regulatory Reform, Commercial and Antitrust Law Chairman Spencer Bachus (R-Ala.) issued the following statements.

Chairman Goodlatte: “Americans across the country are affected by the issue of Internet sales tax whether they are consumers or business owners. The aim of the principles is to provide a starting point for discussion in the House of Representatives. I greatly look forward to hearing fresh approaches to this issue and continuing the discussion.”

Subcommittee Chairman Bachus: “The principles issued by Chairman Goodlatte provide a thoughtful framework for discussion on the Internet sales tax issue. As chair of the subcommittee with jurisdiction over Internet tax issues, I appreciate that the Chairman is giving it serious consideration.”

Basic Principles on Remote Sales Tax

1. Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.

2. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.

3. No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.

4. Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.

5. Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.

6. States’ Rights – States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens.

7. Privacy Rights – Sensitive customer data must be protected.

You’re going to feel a little “pressure” – Audit Pain Mistatements (Taxcloud)

Ever heard that little white lie at the dentist or doctor’s office?  That’s their euphemism for extreme pain.  When a doctor uses that phrase, you know it’s going to hurt soon.

I now have a new equivalent:  “post-modernization audit.”

Fedtax/Taxcloud is at it again, spouting absolute nonsense regarding the risks and pains of an audit in discussion comments.  Kevin Hickey had written a piece about classification issues they had in an audit in their home state of Pennsylvania.  It was brutal, time consuming and ended up leading to a $25,000 fine due to confusing interpretations and classification issues.

TaxCloud chimed in:  “Ultimately, the situation described is a business affected by historic laws, not laws envisioned and enabled by the proposed federal legislation. Indeed, resolution of the writer’s concerns are the exact purpose of the bill.”

Which of course, is nonsense, and diregards completely the reality of his story and our legitimate concerns if the Marketplace Fairness Act passes.

The MFA is the CAUSE of the increased audit risk for a smaller business and are absolutely not the exact purpose of the bill.  How does letting 45 more states audit you make things better? A 4500% increase in audits and more importantly, the liability of audits is the worst part of the Marketplace Fairness Act. To say the purpose of the bill is to resolve this is Orwellian double-speak, just like the name of the bill.

Then, the funnier/worse part.  “thus in no way possible an accurate description of a post-modernization audit.”

Ahh.. See somehow audits will get better in the future if The Marketplace Fairness Act passes.  And we’ll be flying jet packs in the future too.

Auditors behavior will not change.  Items will still need to be poured over, invoices, tax returns, the whole shebang.    Except that you can be audited by 45 more states instead of 1.  A fatal flaw in the MFA and one that is not fixable.

And with all due respect to TaxCloud, how would they know?

  • Taxcloud has only been around for a few years
  • Taxcloud has a fairly small number of clients
  • Their experience is hardly a large enough sample size to really understand audit risks if MFA passes
  • Followup beyond any initial data a CSP could provide wouldn’t be in their understanding

Is it Candy? Streamlined Sales Tax Organization & SSUTA Classification Issues

One of the most questioned items on the SSUTA site is regarding the classifications of what is or isn’t candy.  Why does it matter?  Because how it’s taxed.  Here are a few samples, answers a bit further down.  There’s a 6-page document on what qualifies as candy: candy rules (pdf).  And a sample matrix with real world examples here:  Samples: candy or not

So let’s play!

Cotton Candy – No!  Not in form of bars, drops, or pieces

Red Vines – No!  Contains flour, so not candy.   Licorice without flour?  Yes!

Tootsie Roll – Yes.

Kit Kat – No!  Contains flour, so not candy.

Twix – No!  Contains flour, so not candy.

Pixie Sticks – No!  Not in form of bars, drops, or pieces

Quaker Chewy Dipps – Yes!  Sweetened and doesn’t have the word flour in the ingredients.  But does have whole grains.

Dried fruit without sweetener?  No.  with sweetener?  Yes.

Nestle Crunch – No.  Contains flour.

Sure, it’s fun to pick on examples of crazy items, but this is candy!  And hardly unique.  Definitions of bottled water.  Are “essence” flavored waters soda? (no).  Just a taste (pun intended) of the joys of compliance regarding classification.  Now I want a Kit Kat!