Not all supported? Are any?

From an article in Ecommerce Bytes titled “Merchants Would Face Hefty Costs with Online Sales Tax Bill”.

Yet another cheerleading quote that is certainly misleading at best.

“We admit that not all order management systems have pre-integrated with TaxCloud (yet), but that tide is shifting rapidly”

What order processors do they support?  None that I am familiar with, at least according to their partner page.  None of the order processors that I’m aware of are on their list.  And that’s where most of the nitty-gritty work of charging, refunding, partial shipping and more occurs and that’s where support is key.  The shopping cart is only the tip of the iceberg, but not the most important part for many.  I’m not sure what Tax Cloud’s CEO is referring to as an order management system, but it’s meant to imply quite a bit of existing support.  Where?

“”Our view is that sales tax compliance is approaching a “tipping-point” where it will become a standard feature – soon all order management systems will have sales tax management already on-board just to remain competitive.””

My view is that they want MFA to pass, so all the software companies will be forced to scramble to integrate with Taxcloud and/or others at the barrel of a gun and with a deadline.

October 14th 2013: 44 partners listed.  Almost 1/2 are listed as “coming soon”.  Not sure which of them I would call an order processor.  Maybe Salesforce?

 

 

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

Avalara – Huffington Post Articles

http://www.huffingtonpost.com/rory-rawlings/

 

Rory Rawlings is the Founder and Chief Tax Automation Officer of Avalara.  He’s been given a platform on Huffington Post to write advertorials for his company.

His two articles boil down to this:

June 5th: Collecting Sales tax is hard.  Get ready now!

vs.

June 26th: Everything will be OK, software will make everything all right.

And how is it that Mr. Rawlings has published 2 articles here. This one says how easy it will be. The June 5th article’s last section hints at the exact opposite to drum up business:

“The Marketplace Fairness Act could dramatically change sales tax compliance requirements for small businesses that are not preparing today. Whether selling bikinis to starlets or skateboards to CEOs, the smart money is on businesses that prepare now, not later.”

If it’s so simple, why do I do I need to scramble now to get ready? Earlier in the same June 5th article, you mention it would take a minimum of 6 months warning from the states to even try and collect the taxes.
“Even if this bill becomes law tomorrow, some states will have to implement significant tax code simplifications in order to enforce it. Even then, states would not be allowed to implement the law earlier than 180 days following enactment.”

So is it easy? Or a complete bear, that you need to get started on now? My money (and venture money) is on bear.

 

My Wall Street Journal Opinion Piece – In August 8th Paper

I’m very excited to write about an opinion piece I wrote for the Wall Street Journal.  I’m thrilled that one of the most prestigious papers in the world is including my piece about the Marketplace Fairness Act in the August 8th 2013 Journal.

The piece is about the real-world impacts the Marketplace Fairness Act will have on my business and other similar businesses and it addresses the many myths the pro-MFA big box lobbyists and tax compliance companies are shoveling on a daily basis.

Shareable link – Good for 7 days.

 

Text of my opinion piece:

August 8, 2013

Calling Foul on the Marketplace Fairness Act

The cross-state sales tax legislation is a grave threat to online businesses like mine.

Proponents of the Marketplace Fairness Act—which would enable states to collect sales tax on Internet vendors—have had very little difficulty getting the word out about why this legislation should become law. Well-connected big-box retailers, venture-funded tax service companies and Amazon.com certainly have the budgets to run an excellent PR campaign for passage of this bill. Lost in this lobbying shuffle are a large number of businesses who will be severely hurt or even put out of business by this ill-conceived bill.

I’m the owner of Chefsresource.com, an online retailer of gourmet kitchen items for the past 14 years. We’re a family-run business with a fairly small number of core employees who handle all aspects of our online business. We’re located in California and collect sales tax for our California shipments.

The biggest concerns I have are about compliance costs and the audit possibilities under the MFA. Right now, I am in the middle of my second California sales-tax audit. Even under the best of circumstances, audits are stressful, invasive, time consuming and costly. A good auditor is thorough and just doing his job, but the hard expense of extra accounting assistance and, more important, the demands on my time are a real challenge and take away from my ability to grow my business. The MFA would require companies like mine to collect sales tax in states where we have no physical presence, opening us up to the risk of audit by as many as 45 sales-tax states each year.

I truly cannot see how our business could possibly handle audits by scores of different states and tax jurisdictions at any one time. Even a few audits per year would be more than we can handle, and the personal financial responsibility for any audit deficiencies is frightening to me. The only safe-harbor provision in the MFA is that companies would not be held responsible if an error is made by the government-certified software provided “free” under the proposed law.

But software glitches are only a small portion of the possible audit issues. For instance, how would this new remote auditing power be enforced? Will they come to my office like my local auditor does? Of course not. Will we be compelled to attend audits in different states? This is not addressed in the bill or directly addressed in the states’ simplification standards document.

The myth of free software solving everything is especially infuriating to business owners who actually understand the business processes involved. To quote McKane Davis, president of Scrapbook.com and one of the founders of eMainStreet Alliance, a grass-roots group of online small businesses opposed to the MFA: “The software is free like a puppy is free.” Every state is allowed to offer its own choice of software. The software might be custom-written by the state, or might be licensed from a tax-software provider. It’s not possible to integrate numerous, incompatible “free” solutions into our business. The only solution is to pay a provider.

Unfortunately, even paid solutions will not fully accommodate our fairly standard business requirements. There is far more to sales-tax collection than figuring out the correct amount due in the shopping cart. Avalara, a leading sales-tax compliance service can certainly handle that small aspect of the big picture. But they don’t currently work with our order-processing software, which handles phone orders, returns, sales-tax reports and more. Our Amazon sales cannot be handled through this paid service either. Amazon sales-tax collection would have to be handled through Amazon itself—for a fee of course.

The small-business exemption excluding companies with remote sales of less than $1 million sounds generous, but is far too low. Assuming 5% net margins, (Amazon’s is closer to 1%), that’s $50,000 a year in net profits. Compliance costs will wipe out a large chunk of those profits. The definition of “small” also will be a disincentive against growth; many people will shrink their businesses to avoid the issue or simply shut down.

Moreover, a much larger number of businesses will be affected by the MFA than is commonly known. Remote sellers under the act most visibly include online retailers and catalog sellers. But the act will also apply to remote vendors, manufacturers and distributors who supply retailers. Many of our suppliers, for example, would not qualify for the small-business exemption and will face the same 45-state audit risk we do. Some of our suppliers also sell direct to consumers. They will be hit in the same way all remote retailers will. Their costs will need to be passed on, which will likely lead to higher wholesale and retail prices.

I strongly support the Supreme Court’s 1992 decision in Quill Corp. v. North Dakota that no state may require retailers to collect sales taxes from online buyers unless the retailer has a physical presence in the taxing state. Physical location is the key and any attempt by other states to pass their tax-collection burden onto me is a grave threat to my business. The MFA is flawed legislation that doesn’t bring true simplification to the process.

Avalara didn’t care for my quotes – A letter from their lawyer/lobbyist

I’m surprised that the Emainstreet.org blog received a letter from a lawyer representing Avalara regarding this article (original still on my site).  How there could be any issue with a series of perfectly footnoted quotes from their own publicly available documents was amusing to me.  Heaven forbid I gave the (correct) impression that Avalara wants the MFA to pass.

It’s obvious Avalara supports the MFA and will rake in the money if it passes.  Whether it’s being a basis for the “free” states limited offering or by supplying fee-based services direct to retailers, it’s a huge bonanza for the company.  Avalara is currently only 1 of 6 “certified service providers” in the country at the time of this writing.

Fortune magazine writes about the windfall in “The biggest winners of an Internet sales tax”

The founder wrote this ridiculous puff piece advertorial about how software takes care of everything and makes everything A-OK with the MFA.

Avalara has actively contributed to and lobbied regarding this bill (publicly available records) available on the U.S. Senate website for lobbying reports.  Here’s one for $20,000.   And another this year for $40,000.   So far this year, they’ve spend $50,000 lobbying for this bill.

But here’s the best part!  The lawyer who contacted Emainstreet is also a lobbyist for Avalara in the above reports.

Since Avalara is such a cheerleader for Marketplace Fairness Act, I will of course continue to fact check their speaking out of both sides of their mouth.   Is it easy and not a burden on retailers? (when talking to Congress or cheerleading for passage?)  Or hard, like it actually is, when communicating with prospective customers in white papers, webinars and other communications?  Only one is true.  Pick one.

The MFA impact on Manufacturers, Distributors & Wholesalers – A Huge Swath of the Economy Will Be Affected (Updated)

Update at bottom 7/31/13 – Confirmed by meeting notes of Streamlined tax board.

Executive Summary:
Remote sellers under the Marketplace Fairness Act (MFA) most visibly include online retailers and catalog sellers.  However, the MFA will also impact the vendors/manufacturers/distributors who sell to these retailers as well, regardless if the manufacturers sell direct to consumers.  The MFA will impact a much larger group of companies than previously thought and across all industries.  Manufacturers and wholesalers have always dealt with their own state where they have nexus, MFA will expand this dramatically.  These negative effects will be felt through virtually all areas of the economy.

 

Massive Impacts include:

  • Sales tax audits from up to 46 states in any year – Even if you have no presence in the state and do not sell direct to consumers.
  • Substantial initial compliance costs including IT upgrades and integration issues, personnel commitment and capital expenses
  • Significant ongoing expenses for service contacts, personnel costs and other compliance costs

 

Background:

The Marketplace Fairness Act (MFA) bill passed in the Senate and is commonly referred to as the Internet tax bill.  The bill is currently in the House of Representatives, in the Judiciary committee under consideration.  The bill would allow states to require remote sellers to collect sales tax on their behalf even if the company doesn’t have a presence in the state (called nexus).  This law would overturn all previous precedent which was confirmed in the 1992 Supreme Court’s Quill decision regarding a catalog company selling to North Dakota businesses.

 

Why does it affect you?

 

The MFA bill concerns “remote sellers”.  Remote sales don’t just mean Internet sales, but includes any sales across state lines.  Other examples include catalog orders, phone orders, and sales to retailer customers for resale.  The relevant sections of the MFA bill and SSUTA agreement:

 

S.743 or the MFA states in section 2 requires all sellers not qualifying for the small seller exemption to collect and remit sales and use taxes per the provisions of the Streamlines Sales and Use Tax Agreement (SSUTA).

In the most recent version of the SSUTA amended 5/12/12 a seller is defined on page 10, line 25: “A person making sales, leases or rental of personal property or service”

Section 317 – Administration of Exemptions (such as wholesalers/vendors/manufacturers selling to retailers) Line 17 – “The seller shall maintain proper records of exempt transactions and provide them to a member state when requested.”

The above line clearly shows that the wholesalers retailers purchase from are certainly considered sellers.

 

And really, this isn’t surprising.  Current sales tax rules do require exemption certificates to be filled out for a state that you’d have sales tax responsibility for (your home locations(s)).  There is an exemption certificate for the SSUTA for states to use.  MFA changes the game for the number of states suddenly involved.

 

How does the law affect you?  It depends if you also sell retail to remote consumers.

 

Scenario 1: Manufacturer/wholesaler sells to retailers and sells direct to Consumers. – Full brunt of MFA applies.

 

These companies will be impacted exactly the same as any other retailer under the MFA.  They will suddenly have the same compliance and audit burdens as any other retailer would, with all the states.  Before the MFA, the manufacturers only had to worry about states they had nexus in for collection of sales taxes to end users and managing exemption forms for their wholesale retail customers that are in the same state(s).

 

Some of the Sales Tax Compliance Headaches Ahead – Hard Costs

  • Extensive initial commitments of personnel time
  • Installation/configuration of tax computation software or service  -IF your various touch points are supported by the vendor.
  • Possible Software upgrades
  • Initial fixed expense and annual yearly expenses to collect and remit tax for up to 46 states
  • Submitting monthly reports and collections to up to 46 states
  • “Free software by the states” – A myth.  All states can pick their own and it won’t work with your systems.  45 different versions certainly won’t.  So you’ll have to sign up with a paid service

 

Some of the Sales Tax Compliance Headaches Ahead

  • Audits from up to 46 states – Even if you have no physical presence or representation
  • Up to 46 audits in any given year.  Even 1 state every 10 years is almost 5 per year, every year!
  • New Compliance Demands – Exemption certificates better be on file!  You will be audited.
  • State tax board communications – The burden of responding to all state inquires is substantial when multiplied 4500%.

 

Scenario 2: Manufacturer/wholesaler doesn’t sell direct in any way to consumers, only retailers.  Audit risk jumps up to 4500% – Audits from 46 states.

 

True-wholesale companies that only sell to retailers will also be impacted by the MFA.  They are still sellers.  As it is now, these manufacturers already do report to their home state’s sales tax board, but they would require exemption certificates to be on file from their retailers, certifying the product was for resale and that sales tax did not need to be collected.  Their home state can audit them and probably does from time to time.  Under MFA, these manufacturers would now be subject to the same audit risks as retailers.  The manufacturers are still sellers of products to these states and will need to prove, on demand or audit, that their sales are properly exempt sales.  So even manufacturers who don’t sell at retail to end consumers, will need to respond to and can be audited by all other states to ensure transactions are properly exempt.

 

Some of the Sales Tax Compliance Headaches Ahead

  • Audits from up to 46 states – Even if you have no physical presence or representation
  • Up to 46 audits in any given year.  Even 1 state every 10 years is almost 5 per year, every year!
  • New Compliance Demands – Exemption certificates better be on file!  You will be audited.
  • State tax board communications – The burden of responding to all state inquires is substantial when multiplied 4500%.

 

Recommended Actions – Take Action Now!

Let them know how this will harm your business

 

  • Contact the House Representative for your business

http://www.house.gov/representatives/find/

  • Contact your personal Representative (if a different district)
  • Contact the members of the House judiciary committee

http://judiciary.house.gov/about/members.html

  • Contact your state’s governor (major supporters of MFA)
  • Contact your local chamber of commerce (also supporters of MFA)
  • Contact your state’s chamber of commerce
  • Work with other trade groups or associations in your industry
  • Let others know!  Sound the alarm!
  • Contact local and regional media

 

Update 7/31/13: Streamlined Tax Governing Board March 18th 2013 Notes Confirm – Taxable and Nontaxable count towards small seller exemption. Wholesalers, distributors and manufacturers will ALSO be affected, even if they don’t sell direct to consumers and don’t collect sales tax. Certainly a drag on all sectors of the retail economy if implemented:

Notes regarding their Federal Implementation Workgroup Call from March 2013: They specifically talk about if non-taxable counts towards remote sales for the small seller exemption, and they concur they do.

“MFASection 2(c) –Updates
Small Seller Exception Threshold
There were questions received after the last implementation meeting regarding whether non‐taxable sales are included in determining the threshold. Mr.Jennrich said generally it appears that it would include both taxable and non‐taxable sales based on the language, a reading consistent with discussions at the prior Implementation Workgroup meeting”

Meeting notes from their site

Compliance costs – Credit card fees add up

In what would seem like a minor example of compliance costs, the cumulative effect of these costs cuts against the profitability and survival of small retailers.  One more example of compliance costs: The retailer will have to pay credit card fees against these new sales tax receipts.

A couple of examples:

Retailer has $1,000,000 in sales per year.  Assume an overall 7% sales tax collection rate on these sales, now expanded to nationwide.  The newly collected sales/use tax will amount to $70,000 per year.  All $70,000 would then be remitted back somehow to all the states.  But the retailer is stuck with the credit card processing fees on this $70k.  Assuming 3% merchant fees or paypal fees, this retailer is now paying $2100 out of their own pocket every year.

And of course this example scales.  $3 million in sales?  $6300 a year, every year just in new credit card merchant fees!

Instead of the states enforcing their own use tax laws, they are forcing out of state retailers to be their unpaid tax collectors.

The Steamlined Tax Governing board has acknowledged this in their own small seller study task force:

“The issue of the credit card merchant fees imposed on the amount of tax collected on credit card sales is an important one.  It is a cost that is solely attributable to the seller’s role as a tax collector, it is not in the control of the seller, it will become more important as electronic payments become more prevalent, it increases as the amount of tax collected increases, and it can be a substantial amount for large sellers. There are also some costs associated with other electronic payments such as debit card payments. The Task Force believes further work is necessary to gain an understanding of the relative role of electronic payments among various types and sizes of retailers as well as the distribution of electronic payments across debit cards, credit cards and private or store label cards and the relative costs associated with such payments”