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.

Myth of Declining Sales/Use Tax Revenue – Wisconsin Edition

Had a lovely talk with a Wisconsin employee and Streamlined States Governing Board executive.  I enjoyed our talk regarding our views on the MFA and even worse RTPA, but he did bring up a couple of chestnuts that I’ve covered before in the blog, such as the myth of declining revenue.  So in honor of our chat, here’s the Wisconsin edition.   All data is from the Wisconsin Department of Revenue.  Full year data is for retail trade (retail sales).

2010: $1,855,219,269

2011: $1,904,651,681  2.7% increase

2012: $1,966,171,658  3.2% increase

2013: $2,062,166,196  4.9% increase

2014: $2,164,206,817  4.9% increase

Hardly declining.  States make it sound like sales tax collection is plummeting due to the rise of online retail.

And the outlook for this year?

https://www.revenue.wi.gov/news/2015/20150430_01.pdf

General sales and use tax collection is up 5.7% over the same period last year.

Remote Transactions Parity Act – HUGE Small Business Exemption Change – Much Worse than MFA!

To recap, the Remote Transactions Parity Act (RTPA) is the Marketplace Fairness Act (MFA) 1.1.  Same fundamental flawed and broken structure.  But now I think the RTPA is actually much worse than the MFA.

The RTPA has a Small Business Exemption (SBE), as does the MFA.  But new verbiage introduced since a March draft I saw completely destroys the SBE for a TON of businesses.

Inexplicably, the new paragraph states that you are treated the same as a business that exceeds $10 million in sales and can’t be exempt from the law if your company “utilizes an electronic marketplace for the purpose of making products or services available for sale to the public”.

This is INSANE!

So some small company who also happens to list some products on Ebay,  Amazon or Etsy now no longer qualifies for any small business exemption, no matter how small they are and will be required to bear the full regulatory burden of the RTPA 180 days after passage.  Just because they list through a marketplace.  And really, what does that newly added definition even mean in the real world?  Yes, it’s defined, but it’s a bit vague.

This is a TERRIBLE last minute addition to the bill that will dramatically affect the number of affected retailers, enrich CSPs and wipe out some smaller retailers.  I can’t believe that this hugely impactful section wasn’t in the March bill draft and has now been added as almost an afterthought.

 

” (3) ELECTRONIC MARKETPLACE.—The term ‘‘electronic marketplace’’ means a digital marketing
platform where—(A) products or services are offered for
sale by more than 1 remote seller; and (B) buyers may purchase such products or
services through a common system of financial transaction processing.”

 

In the end, RTPA will get rid of the Small Business Exemption after 3 years, leaving a huge windfall for the CSPs to touch literally every business in America.

Remote Transaction Parity Act sure has a LOT of new CSP protections

As covered in our previous Revolving Door From Government –  Part 2, we covered Taxometry and their very recent hires.

It sure was good luck that Taxometry hired former Legislative Director Mike Jerman.  Mr. Jerman was the Legislative Director for Representative Chaffetz (Utah) who by a stunning coincidence steered and/or wrote the “MFA 2.0” Remote Transaction Parity Act (RTPA) bill about to be introduced to the House by Rep. Chaffetz this coming week.  Taxometry is also located in Utah, how doubly-convenient!

So the guy who drove/wrote the new remote sales tax bill for Congress jumped to the private sector to a pending Certified Solutions Provider (CSP) firm that would profit greatly if the bill was passed.  He just started in May and the new bill is being introduced in June.  What kismet!

And it’s only a coincidence that there is a lot of new language in the RTPA bill, compared to the Marketplace Fairness Act, that seems designed to explicitly help or protect these sales tax CSPs.  It’s almost like CSPs wrote it.  Hmmm.

Some highlights of the brand new additional language in the Remote Transactions Parity Act (March draft that I’ve seen) that weren’t in the Marketplace Fairness Act:

Under MFA

States need to provide free software and a way to certify providers.

Under RTPA

Specifies states need to provide free access to all “national” CSPs – a new term/concept to RTPA.  And of course, the states need to pay the CSPs.  A Jobs act for CSPs.

Under MFA

MFA briefly covers retailer not liable for the error if a CSP makes certain errors (like calculating the tax incorrectly due to a CSP’s mistake)

Under RTPA

Additional phrase added: “unless the error or omission is the result of misleading, in-
complete, or inaccurate information provided to the certified software provider by the remote seller.”
 Lobbied for by CSPs?  It weakens the whole “no liability” aspect for retailers.  This was a problem in MFA and is even more explicit here.

Under MFA

Relieves CSPs from liability from the states if the result is due to misleading or inaccurate information provided by a remote seller.

Under RTPA

Added another relief word: Incomplete – so “incomplete” data saves the CSP from liability.

 

Completely new sections have been added to RTPA that weren’t covered at all under the MFA. Some CSP-related highlights that benefit CSPs follow:

  • Section I is a whopper of a section and is entirely new to the RTPA.  This new section covers the possibility of customers suing a retailer OR CSP for under-collected or over-collected sales tax.  So, an admission of an entirely new problem for retailers that this creates?  New lawsuit possibilities?  Or is this also yet another custom piece added to the bill to cover CSPs further.  It’s ALSO another way to help CSPs by explicitly stating in the bill that to avoid the liability, you should use a CSP which is prima facie evidence of “reasonable business practices regarding tax collection”.  Who wouldn’t want to use a CSP with that language in the bill?
  • Small Business Exemption definition changed from counting remote sales to counting all sales (not that states and CSPs aren’t planning on reducing the exemption over time anyway)
  • Yet another brand new section regarding CSPs in the RTPA that wasn’t in the MFA.  Section 3, part G of RTPA.  It’s both a jobs program for CSPs and almost union-like or tenure-like.  It limits how states can deny or revoke certification for CSPs.  The section also sets timeframes in which a CSP’s certification request must be acted on.  It’s also referenced later in definitions.
  • New Statute of Limitations of 3 years.  States may only go after CSPs (or retailers) for incorrectly collecting sales tax for the previous 3 years.

 

Revolving Door From Government – Part 2

A 2015 update for some new finds today regarding a new possible CSP – Taxometry.

I guess it’s not a total surprise when people switch from the private sector to the public side… but boy it seems to be a revolving door.  Reading the who’s who in the Streamlined Sales Tax papers, I occasionally forget if I read about them as a state employee, or as a private employee working with the states.  It seems to be a pretty cozy group.

Frankly, I find it pretty questionable “interesting” when the former Legislative Director for Congressman Jason Chaffetz (UT) for 6 years jumps ship to a new company in the process of being a new Certified Solution Provider (CSP) for the states should the Marketplace Fairness Act (MFA) or similar bill pass.

Mike Jerman:

Legislative Director for Congressman Jason Chaffetz 2009-2015
As of May 2015, Sales and Marketing for Taxometry

Congressman Chaffetz is one of the proponents who is supposed to reintroduce a slightly tweaked version of the failed MFA again this year.  I have no doubt that the new bill will be MFA at it’s core and that any “fixes” are merely cosmetic and won’t actually address the problems with the MFA’s impact on small online retailers that I’ve thoroughly covered here.

Also at this new CSP is Bruce Johnson.

“Bruce Johnson is a past chair of the Multistate Tax Commission, where he currently serves on its Executive Committee. He was the founding national co-chair of the Streamlined Sales Tax Implementing States and has served on the Executive Committee of the Governing Board. He was a member of former Governor Olene Walker’s Tax Advisory Group and was the principal draftsman of Governor Walker’s Recommendations on a Tax Structure for Utah’s Future.”

 

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.”

 

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.

Marketplace Fairness Act Myth: “Level Playing Field”

One of the focus group-tested themes by the pro-Marketplace Fairness Act groups is that they are pushing for a “level playing field”.  How noble of Wal-mart, Best Buy, Amazon and others to push for small businesses to be on a level playing field.   Which of course, is nonsense on many levels.

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.

The flip side of a level playing field is the tired argument that MFA would equalize online and brick and mortar retailers.  Phrases like “online-only sellers should collect sales tax from dollar 1, just like he must”.  Again, nonsense.

  • Online retailers do collect sales tax “from dollar 1” where they have a physical presence, just like traditional retailers.
  • MFA would bury smaller online retailers under a blizzard of audits and collection burdens that don’t exist offline
  • Can a small brick and mortar face audits and compliance costs for 46 states?  No.
  • Can a small brick and mortar be an unpaid tax collector for 46 states?  No.

So get over this rubbish that the Marketplace Fairness Act has anything to do with fairness.  It absolutely doesn’t.  Nor do Wal-mart and the other supporters care.  It’s just the shameless talking points to evoke an emotional response to an issue, to paper over horribly designed legislation that won’t actually do anything for fairness anyway.

UPDATE: Part 2 covers why the MFA is even LESS able to creae a level playing field.  Only 33% of the population lives in streamlined states that will be affected by MFA.  2/3 of the US doesn’t.

 

Follow the Big-time Avalara Money – $100 Million!

Talk about following the money.  Avalara, who I believe is the largest of the Certified Solutions Providers for the Streamlined States has just received additional funding of $100 million dollars!!

Link to Avalara Press Release

Highlights:

Avalara, Inc. (“Avalara” or “the company”), a leading provider of cloud-based software for sales tax and other transactional tax compliance, today announced it has raised $100 million in a financing round from an affiliate of Warburg Pincus, a global private equity firm focused on growth investing.”

““This investment by Warburg Pincus will allow us to put more dollars to work in our growth initiatives.  It also validates our fundamental belief that sales tax compliance automation is inevitable, and Avalara is at the forefront of this movement”

“Including this investment by Warburg Pincus, Avalara has raised more than $200 million in capital since 2004 from a list of investors that includes Sageview Capital and Battery Ventures, as well as other entities and individuals.”

Sure is a lot of money to pour into the company when only a few hundred remote retailers will be affected by the MFA 🙂  Not.

 

Taxcloud abusing DMCA takedowns – The video they don’t want you to see

Taxcloud, and/or proponents of the Marketplace Fairness Act must be very embarrassed about the contents of their business pitch video.  This 90 second video sums up their company, their business plan and how large the market opportunity is.  Proponents have paid for studies with laughably low estimates of the number of retailers that would be ensnared by the Marketplace Fairness Act.  They’ve consistently soft pedaled how many would actually be affected.  I’ve heard numbers in the low hundreds to a thousand or so be routinely thrown around as fact.  You know they’ve been using this same lie with legislators as well.

Their video states the market is 350,000 to 3.5 million retailers.  Oops!  That doesn’t fit the narrative of less than 1000 at all.

R. David L. Campbell is a founder and CEO of Fedtax, AKA Taxcloud.  He has been attempting to quash a video from being shown through this site.  He has fired off a number of DMCA takedown requests against my 19 second snippet of the video, which is clearly fair use in this context.   The video has been pulled from Youtube and Vimeo.  His takedown requests of this short excerpt are illegal and an attempt to silence a critic and hide an embarrassing truth.

What’s amusing, is that this video was put on Vimeo by Taxcloud and has been publicly viewable for a very long time.  It only became an issue when my article called out what I feel is a closer estimate to how many retailers will be harmed by this and showed the same video.

In case you missed it, here’s the relevant section of their video that they REALLY don’t want you to see (at least, anymore):