Why Reports Of Huge State Sales Tax Losses Are So Wrong

With the latest report of Mississippi’s projected and utterly inflated “losses” from Ecommerce use tax not being collected, I thought I’d do a quick check.

As mentioned before, the top vendors in Ecommerce are larger, stronger and are now the vast majority of ecommerce sales.  The big are getting bigger.  Researchers don’t generally understand this and just do straight line projections and estimates.

Out of the top 15 online retailers, only 1 of the top 15 (Nordstrom) doesn’t collect sales tax for Mississippi at this time.  Most sales tax is collected, the pot of gold at the end of the rainbow the states are hoping for is just fantasy.

Retailer                                                                  sales in millions                 collects MS tax?

1. Amazon.com $79,268 Yes
2. Wal-Mart Stores Inc. $13,484 Yes
3. Apple $12,000 Yes
4. Staples $10,700 Yes
5. Macy’s $4,829 Yes
6. The Home Depot $4,267 Yes
7. Best Buy $3,780 Yes
8. QVC $3,722 Yes
9. Costco Wholesale $3,618 Yes
10. Nordstrom $2,699 No
11. Target $2,524 Yes
12. Gap Inc. $2,519 Yes
13. Williams-Sonoma $2,501 Yes
14. Kohl’s $2,367 Yes
15. Sears Holdings $2,057 yes

A Look Back At Inflated “Lost Sales/Use Taxes” Reports – Not Even Close To Reality

Just a quick post regarding the supposedly lost sales/use tax revenue.  There have been posts on the topic already regarding the guesswork and ridiculously inflated numbers of lost sales tax/use tax revenue being floated around due to remote (Internet mainly) sales.   The National Conference of State Legislatures quotes massive losses referencing the massively flawed report from Doctors Bruce and Fox. Link to the numbers:

http://www.ncsl.org/research/fiscal-policy/collecting-ecommerce-taxes-an-interactive-map.aspx#2

 

Tennessee is the epicenter of the report and has been leading the fight for the Marketplace Fairness Act.  Amazon started collecting at the beginning of 2014 for TN. Their fiscal year is June 1st.  Keep in mind that supposedly for 2012 Tennessee had estimated losses of approximately $750 million dollars, $410 million due to electronic sales.  As a point of reference, the total for ALL of Tennessee’s sales and use tax was only $590 million.  This give a pretty good indication of how crazy and off-base these numbers were.

TN Data (Sales and Use Receipts, Source : TN Department of Revenue). Rounded to nearest million.

  • 2011 – $555 million
  • 2012 – $590 million (+35 million, 6.24%)
  • 2013 – $597 million (+ 7 million, 1.18%)
  • 2014 – $630 million (+ 33 million, 5.54%) – First year (1/2 year) Amazon collecting sales tax for TN shipments
  • 2015 – $668 million (+ 48 million, 7.62%) – First full year Amazon collecting sales tax for TN shipments
  • 2016 – $686 million (+ 9 million, 1.28%) – Amazon full year of sales tax collection as well.

See the giant windfall that was being lost?  Neither did I.  That’s because the assumptions were terrible and wildly overstated and didn’t include the reality that a number of key online retailers are national chains and already collecting sales tax for most/all states that have a sales tax.  Keep in mind that most states have had increased sales tax revenue due to an improving economy, further reducing any increases due to Amazon’s new collections.

Flawed Mississippi “Lost Revenue” Study

The latest ridiculous study about how much revenue is “lost” through unpaid use taxes just came out.

The full report is here:

http://www.mississippi.edu/urc/downloads/tax_revenue_remote_sales_2017.pdf

While I’m sympathetic that hard numbers for many things are hard to come by, the assumptions used are so overstated that the report is certainly not even close.  Not only that, Amazon is now collecting sales tax for Mississippi shipments, so the real uncollected use tax on remote sales would be a small fraction of the alleged range of $105 – $122 million per year.

From the report, discussing the limitations:

“In order to determine the value of potential sales and use tax collections, the value of remote sales made to residents of the state of Mississippi is needed.  Unfortunately, this data does not exist.   While national e‐commerce data are available, it is not divided among the states.  Moreover, data regarding non‐electronic remote sales do not exist.  Non‐electronic remote purchases consist of sales through more conventional means such as telephone and mail order.  As a result of this lack of data, the very foundation of the estimation in this brief is based inherently on many assumptions and estimates

Yes, lots of guesses.  I don’t assume or claim bad faith necessarily, but I absolutely question their assumptions.

Why I believe it’s overstated?

  • They don’t grasp that many larger retail chains are dominating e-commerce and already do collect tax for online orders
  • Mississippi has the lowest median income in the entire country, 50th out of 50.
  • Assumption (they downgraded the official MS guess) that MS is 0.85% of all national retail.  They are only 0.95% of the population and have the lowest median income in the country.  I believe 0.85% is FAR too high.
  • Lowest rate of ALL states for having a credit card.  Only 51.6% of 19+ year old adults have one (in their report)
  • 2nd lowest percentage of all states of 15+ year olds who shop online (in their report)
  • 65% of MS residents have broadband internet, 18% live in a household with no Internet access – far lower than the national averages (in their report)
  • Amazon is now collecting tax for Mississippi shipments (not the authors’ fault per se)
  • Huge guesses as to how much of any interstate commerce is taxable or not. I assume much of it is for retailers for resale and non-taxable.

In short, this report will get tweeted but it’s just a series of wildly inaccurate and overstated assumptions that are not likely to be found in the real world.

Amazon Now Collecting Sales Tax For 10 More States – Almost All The Population

According to Yahoo Finance (and elsewhere)

“The states in which shoppers are now subject to sales taxes on Amazon purchases are Iowa, Louisiana, Mississippi, Missouri, Nebraska, Rhode Island, South Dakota, Utah, Vermont and Wyoming.”

This brings the total to 39 states out of 45 that have a sales tax.

Let’s make this easier: What tax collecting states does Amazon NOT collect sales tax from yet (and their percentage of the US population): Alabama (1.53%), Oklahoma (1.22%), Arkansas (0.94%), New Mexico (0.66%), Idaho (0.51%), Hawaii (0.44%), Maine (0.42%), Wyoming (0.18%).

In total, Amazon is collecting sales tax for shipments to 94.1% of the population (including not collecting where there is no sales tax).  Amazon is not collecting sales tax for shipments to 5.9% of the population that reside in states with a sales tax.

Amazon is continuing to dominate e-commerce, along with other large companies like Wal-Mart, Home Depot and other large chains that already have a physical presence in most/all states so they already collect sales tax for their sales.

So where is all this uncollected use tax that requires a cross-state power grab, such as the Marketplace Fairness Act or RTPA?  It’s not there and such a sweeping and destructive law (to smaller sites) is not necessary at all.

Use Tax Education For More Revenue – A Natural First Step? Not for Utah

From the sounds of the shrieks coming from the states regarding use tax and the necessity of a law like the Marketplace Fairness Act (MFA), you’d think that the states have done everything possible to collect their “missing” revenue.  The states have thrown around unrealistic (and frankly nonsense) numbers about how much sales tax/use tax revenue they’re losing due to the Internet and other remote retailers.  Actual sales tax/use tax revenue for the states has actually been doing fine, as shown repeatedly in this blog with hard data examples from various states’ own department of revenue’s figure on sales tax collection.

I’ve stated all along that the natural, first logical step would be for states to collect the money from their own residents.  The terrible overreach that is MFA and other similar bills isn’t required at all if states just bother to do their jobs.  IF the revenue being lost is actually anywhere near what they claim, they’d be stupid not to spend money to try and capture some of that “lost” tax revenue.  Plus, their return on their investment (ROI) should be great.  Economically, it makes zero sense for them NOT to spend money trying to collect if they believe it will bring in more money than it costs.

So I began my quest with the state of Utah for a few reasons: Representative Jason Chaffetz has tried to gather support for his version of the MFA (RTPA, covered throughout the blog), Utah is a key state trying to pass unconstitutional state laws requiring tax collection from remote retailers AND Utah seems to be a leading state in complaining about the problem.  So are they a leading state on doing something about the problem?  Or are they just a whiner?  I think you can guess the answer.

I reached Jeff Christiansen, the Assistant Director, Taxpayer Services Division, Utah State Tax Commision and asked what Utah is doing to educate Utah taxpayers on their use tax obligations.

The short answer is Utah is doing nothing.

To paraphrase, there’s a line item on some of their tax forms and if you download/have access to the printed instructions for the form it mentions use tax.  If you’re audited, use taxes would be covered there.  So nothing.

My followup question was on how much money is budgeted/spent on educating Utah state residents regarding their use tax obligations, since Utah claims it’s a huge amount of revenue they’re missing out on.

Zero.  Not applicable.

“I am not aware of the Tax Commission having any type of budget to proactively pursue consumer education using the methods you have described…such as ad campaigns, TV spots, radio and paper advertising etc.  Therefore, approaching your question number 3 from an advertising perspective – “How much does Utah spend on these efforts (if applicable)?” –  the answer would be it is currently “not applicable”.”

So Utah is spending ZERO dollars on trying to collect their state tax from their own citizens but is more than happy to foist massive actual hard costs and ongoing administrative costs on all the online retailers that would be affected by the MFA.

Utah: Get back to me after you’ve tried to do your job… then we can talk about unprecedented and intrusive national legislation that lets states reach across their borders to enforce their state laws.  Not until then.

The Remote Transaction Parity Act Won’t Touch These Foreign Sellers

The Remote Transactions Parity Act (RTPA) and the Marketplace Fairness Act have a gaping hole that will continue to taken of advantage of even if either bill passes.  Combine this with subsidized inexpensive shipping for the “developing country” of China – means that China will continue to ship direct to the US at prices no one else can touch.

Here’s an actual example of what I mean: A $1.39 stereo jack cable for plugging my Ipod into a small speaker.  This item was purchased on Amazon from a third party seller that ships direct from China.  $1.39 and with FREE SHIPPING.  There’s also no sales tax charged since they are a foreign seller.  And as extra frosting, they declare the item was a gift, not a commercial shipment.

china-1w china-2w

The massive big box retailer funded RTPA/MFA push will foist compliance burdens on millions of small remote and marketplace sellers yet leave foreign sellers completely untouched.  Despicably, Wal-mart (and others) funded lobbying organization Stand with Main Street and the related lobbying fronts actually have the nerve to suggest that Alibaba will crush us if we don’t pass the MFA or RTPA.  In fact, any of the foreign sellers through Alibaba will be out of the reach of the law anyway and will NOT collect tax.

 

Amazon collecting sales tax – now up to 74% of population

Some new states added to the list, according to this Internet Retailer article.

“Once Illinois comes on board on Sunday, Amazon will collect sales tax in 24 states, including from eight of the top 10 most populated states. Ohio and Michigan are the only states in the top 10 where Amazon does not collect sales tax.

According to population estimates from the U.S. Census Bureau as of July 1, 2014, 73.8% of the United States population lives in the 24 states where Amazon will collect sales tax as of Feb. 1.”

That’s certainly WAY more coverage of the population than the so-called Streamlined states are (about 1/3 of the population).

As Amazon continues its dominance, growth and increased presence and tax collection, why do we need the mess that is the Marketplace Fairness Act/Efairness?  We don’t.

 

Cow Pie with a bow on it! – “Remote Transaction Parity Act” MFA 2.0

Again, with the names of bills that mean the exact opposite.  MFA 2.0.

First, the Marketplace Fairness Act – which would never create fairness for anyone (well covered on this blog)

Now, after yet another year of defeat, it’s time to rebrand!  Why bother to truly start over and address the House Judiciary’s fairness principles from 14 months ago or learn from your mistakes as to why this terrible bill met resistance.  Let’s put a bow on this cow pie of a bill instead!

According to this article, MFA 2.0 will be called the “Remote Transaction Parity Act”.  Which of course means it won’t have any parity between “brick and mortar” and remote sellers of any kind.  It sounds like the overall approach is unchanged and proponents have made a tweak or two for window dressing.  So they put a bow on the cow pie.

Will “brick and mortar” sellers have to:

  • Deal with 46 states tax rules?
  • 9600 tax jurisdictions?
  • Be exposed to audits from 45 more states than before?

Of course not.  So of course this bill has nothing to do with “Parity”.  The name probably focus tested well.

“I think it will be very palatable to both sides of the aisle,” Chaffetz told Tax Analysts following the meeting. “It really clarifies a number of things that people thought were wrong with the MFA. It just makes it a better bill.”

I don’t need clarification.  Frankly, I and some other opponents have forgotten more about the legal and implementation details than most proponents or legislators have ever known or imagined.  Small store owners are a detail oriented and pragmatic group who have probably done about every job in their company at some point.  WE get the details.  THEY don’t.

The entire fundamental approach to the MFA is flawed, needlessly complex and will lead to unacceptable compliance costs, burdens and audit risks.

“”How many more retail obituaries are we going to have to read before we, Congress, recognize pursuant to what the Supreme Court said in 1992 that we are the only institution that can intercede on the issue and issued us an engraved invitation to fix the problem,” Womack asked.” (Rep for Wal-mart’s district, major funder of the bill)

We will have the same number of local retail obituaries with or without this bill.  Perhaps more when smaller online retailers using the Internet to try and grow a business get wiped out by this train wreck.

“”If any small business had a concern about MFA, this will take away their concerns,” Osten said. There is language in the draft bill that would reduce the burden of audits on small businesses, Osten said.”

Horse hockey.  I call BS.  The previous MFA bill is only 8 pages.  Much of it refers to the Streamlined States document, which is hundreds of pages and is what really defines much of the law.  Audits are certainly a prime concern, but there’s just no way a tweak to the bill will remove this threat.  And audits is just one of many major, fundamental problems with the bill.

“”The new bill that Congressman Chaffetz has will indeed respond to the principles raised by Chairman Goodlatte and should respond to all of the concerns the House Republican leadership has raised about the MFA bill.””

More horse hockey.  MFA was fundamentally incompatible with the Judiciary statements.  If it were so easy to tweak MFA to address the concerns, why did proponents wait 14 months?  Because MFA was never going to pass muster.

As an added bonus, our favorite Pro-MFA huckster David Campbell of Taxcloud is in the mix yet again!  Somehow he managed to be clairvoyant and register the domain name RemoteTransactionParity.com in June, almost 6 months ago before this announcement.  It shows how cozy the CSPs, especially rent-seeking Taxcloud, are with pro-forces and legislators.  Of course, he will stand to make millions should MFA 2.0 pass.

“Is it possible that Rep Chaffetz office leaked the bill to the Certified Software providers before even letting anyone else see it? Is it possible that David Campbell and other CSPs are actually writing the bill? They sure are cozy!  And we’ve seen with our simultaneous Twitter blocking from all pro-accounts, they do work together.  Perhaps Mike Jerman (who is spearheading this legislation in Chaffetz office) should listen to all parties instead of just the party who stands to make millions if this passes.”

 

Grasping At Straws – Alibaba

There’s an article in The Hill today  about the pro-Marketplace Fairness Act proponents doing a big push on some Alibaba themed ads.  The Alliance for Main St. Fairness (Walmart, big box retail chains..) produced the spots which will be running on the news shows this week.  The Hill states:

“The ad marks the beginning of a six-figure campaign by the Alliance. The commercial will run on all of the Sunday political talk shows, and on cable television in the Washington, DC, Roanoke and Harrisonburg, Virginia, media markets, according to a spokesman.”

Hmm.. Roanoke, home of the House Judiciary Chair Goodlatte.  Congressman who published a set of fairness guidelines 14 months ago that paused any consideration of the unfair MFA.

Here’s the main gist – quoted from the ad.

““Thanks to the online sales tax loophole this Chinese company will decimate our local retailers. Unless Congress ends special tax treatment for Alibaba and other online giants, Main Street will never look the same,” the narrator states.”

Which of course it utterly false.  For all of the reasons I won’t rehash in Myth of a Level Playing Field & Myth of a Level Field, Part 2 MFA won’t bring a level playing field as it affects so few states and leaves a large percentage of sellers unaffected by MFA.

Above and beyond those reasons, foreign sellers will NOT be affected at all by MFA.

  • U.S. Sellers over the exemption level will bear all of the compliance costs, burdens and audit risks.
  • A Chinese seller shipping into the U.S. will NOT.
  • A Chinese (or other foreign seller) will not collect & remit sales tax

What is this really about?  Desperation.  Throwing whatever proponents think will help pass this bill this year, their last & best chance for a while.  The last sentence of the Hill article really sums up the desperation, trickery and why it matters to proponents:

 “Backers hoped to attach the legislation to a less controversial bill that would extend a freeze on taxes on Internet access. They have admitted that it could be a major setback if the proposal doesn’t become law this year.

As I’ve said before, proponents seem willing to say or do almost anything to pass this bill for big box retail.  This website has documented the cognitive dissonance, the misstatements and the flat out lies.  This is hopefully the last gasp for this bill for a while (knock on wood).

 

33% – Myth of a Level Playing Field Part 2

I’ve covered the myth of a level playing field pretty extensively already in a detailed post.  In short, the Marketplace Fairness Act won’t create the mythical “level playing field” for the perhaps even more mythical “Main Street small businesses”.  Have you looked at Main Street lately?  More large chains than anything these days.  They already collect tax in almost all states.

From that post:

Why Efairness/MFA undeniably won’t create a level playing field:

  •  $1 Million Small Business Exemption – there will always be a steady stream of smaller retailers with products for sale without tax.
  • Cheaters – Many people selling through Amazon or Ebay that should collect sales tax don’t.  This won’t change.
  • Foreign Sellers – Will not be bound by the MFA.  I’m seeing more foreign sellers through Amazon than ever, especially from Japan & China.
  •  “99% of businesses won’t be affected by MFA”   What’s so funny is the cognitive dissonance of proponents who try and minimize the impact of the MFA on businesses.    If actually true, it means only 1% of the stores would start collecting sales tax, so that won’t help “Main Street” businesses at all.

Here’s the other key reason that dawned on me more recently when replying to Taxcloud’s ridiculous “Position Pivot” letter to Speaker Boehner.

  • The only states that will be able to collect sales tax are the streamlined member states.
  • Most big states are NOT part of the streamlined group and haven’t been lining up to join
  • Streamlined states only hold 33% of the US population.  2/3 of the population live in non-streamlined states & will be unaffected by MFA.  1/3 of the population would drive this terrible legislation upon all states

To change state laws to join the Streamlined States group is a BIG deal.  This isn’t checking a box, it’s the state’s legislators agreeing to significantly change their laws and perhaps their state constitution to join.  Even if states wish to go this route, it’s going to take a very long time.

The other route for states to exert taxing authority on remote sellers through the MFA is by achieving certain simplification standards which also would require state legislation, new laws, perhaps a state constitution amendment and would also take a long time.

And some states would not be able or interested to significantly change their laws to accommodate the MFA and wouldn’t be able to collect from remote sellers.

So on top of ALL the other reasons why the MFA AKA Efairness won’t actually provide fairness anyway, this now shows that the law will only apply to 1/3 of our US population anyway.

One more reason why the so-called Efairness is just a big-box retail pushed bill won’t achieve it’s goals anyway.  MFA is Terrible legislation that should die.

FYI, Craig Johnson in a streamlined states interview does confirm this 33% figure himself.