Taxcloud Letter to Speaker Boehner (11/18/14) – A Rebuttal

Wow, what a steaming pile of Pivot.

In case you haven’t heard the term, “pivoting” is what you do when your idea isn’t working.  It’s mostly associated with start-ups who realize their ideas/business model isn’t working, so they “pivot” to another.  It’s mostly a euphemism and frequently used as a mocking put down when the pivot clearly is something that is such a 180 degree turn from their previous direction.  Sometimes pivots work, many times they don’t.  More often than not, it’s a sign of desperation.

So what is the Marketplace Fairness act about?

The Marketplace Fairness Act is about a “Level Playing Field” & Fairness

The Marketplace Fairness Act is about Saving Main St & Local Businesses

The Marketplace Fairness Act is about States Rights

The Marketplace Fairness Act is about Free Markets

The Marketplace Fairness Act is about Billions of Tax Dollars not being collected 

“Continued inaction by Congress on the matter of online sales tax collection leaves online retailers vulnerable and unprotected from an increasing onslaught of inconsistent and difficult-to-manage state laws”

So now Taxcloud has COMPLETELY changed their pitch for the big-box retail-funded MFA – and they’re doing it for us: Online Retailers.

Wow, that’s sure nice of them.  Especially since I’ve taken them to task repeatedly for lying misstating facts, misrepresenting their capabilities to elected officials and any one who will listen…over and over again.  Way more than any other of the 6 Certified Service Providers (CSP) who can process sales tax with the streamlined states.  And of course, it’s utter nonsense.  Their support of the MFA is to receive a windfall of dollars from the states if it passes.

So lets go through the letter

“We understand the anxieties of those opposed to the proposed online sales tax legislation because we used to share their concerns about complexity, compliance costs, and audit risks. “

Yes, you USED to share them, but now your sell tax services, so there’s no fear for you anymore.  You’re not an online retailer.

More importantly, Taxcloud has repeatedly overstated their solution’s abilities and understated actual, real complexity, compliance costs and audit risks that are 45 times worse if MFA passes.  I go from 1 possible state audit to 46 states that can audit me.

“In fact, our founders all worked at e-commerce companies previously, where we endured just such difficulties with sales tax compliance.”

Really?  Not to be nitpicky, but I only see 1 of the founders with what I’d consider any retail ecommerce experience.

“But as we’ve discovered, technology has given us the tools to put these concerns to rest.”

But as before, this is just not true.  Marketing speak.  Plenty of articles on this blog regarding exact and detailed concerns with all of the above.  More importantly, Taxcloud doesn’t support our setup, order processing software and third party sales anyway… so even if they sold this unicorn powder, it’s irrelevant if they don’t support our setup.

Then, a few half-truths at best regarding what their services include:

“responds to audit inquiries, and even provides indemnification in the unlikely event of errors”

We’ve covered this in other audit-related posts, but Taxcloud might provide some initial data, but when a state audits you, they require a great deal of information (in my 2 audits experience) that Taxcloud does not possess.  Details about internal purchases, copies of Federal tax returns.. a variety of documentation.  This also would only be for level-1 sellers where Taxcloud provides ALL tax processing services – currently impossible for most.  So you’d be a level 4 seller – and the states would go to YOU for ALL audit info.

And the indemnification is extremely limited, it’s only if Taxcloud makes an error or if the states gave bad tax rate data to Taxcloud.  It doesn’t cover anything else at all.  Some tech glitch on your end?  Not covered.  One of my 5000+ items misclassified? Not covered.

“Our service is free because we are a Certified Service Provider (CSP), meaning that we have been hired by the SSUTA states”

Free for an ecommerce site that’s simple enough to be supported.  We’re not.  We would become unpaid tax collectors and even pay credit card fees on the newly collected taxes and get nothing.  Taxcloud makes 8% of the sales tax.

 “Our point is this: sales tax automation technologies are available right now and work very well. The argument that the technology does not exist to easily handle remote collection of sales taxes is simply without merit—it’s nothing but an excuse for unwarranted delay.”

Let’s take a trip down memory lane on this one.  Taxcloud has repeatedly dramatically overstated what they can do and the state of their capabilities and supported carts while making these exact same statements for the record.  Some in our group have called them lies, I’ll let the reader decide.

TaxCloud – 2010 Statements vs. Capabilities

Summary:

  • Rosy comments 3 years ago about ease sellers would have handling compliance
  • Recommended $100,000 small business exemption but only because he couldn’t offer zero exemptions
  • At that time in 2010, Taxcloud was certified only 2 months earlier
  • Taxcloud only supported a small handful of shopping carts (6 carts) a year after this paper.  Six!!
  • Taxcloud didn’t and doesn’t support the 3 platforms they identify as the largest (Ebay, Amazon, Yahoo)
  • Taxcloud still has significant gaps in even the shopping carts and platforms supported.
  • Let others figure out how to implement it – Just pass the bill!

Taxcloud: “People also used to say that the world was flat – but that did not make it true.”

  • Made demonstrably false claims about their capabilities while supporting just 1/10 top ten shopping carts in a letter to the Governor of Maine in 2012.

“Any retailer that uses an online “shopping cart” or order management system can register with our
service and be ready to collect sales tax in 20 minutes (or less), no matter how small they are.”

Nope, utter rubbish, AKA a lie.  If you want to read more, Taxcloud has their own category here.

Back to the letter

“And as long as Congress fails to act on the matter, online retailers face growing confusion and vulnerabilities in the face of rapidly changing state laws. California, New York, Pennsylvania, Oklahoma, Texas, Colorado, and many more states have been advancing variously constructed laws and administrative stratagems to require sales tax collection by remote retailers, who are ill-equipped to sort through such demands or judge their legitimacy. As Congress continues to refuse to act, states are drawing the conclusion that they are on their own, and the trend of singular state actions continues and is likely to intensify.”

So passing the horribly flawed MFA is just to help save us?  “We destroyed the village to save it” kind of thing?  Just because some states feel like they can pass a law that is unconstitutional and will never pass muster, that’s no excuse to try and ram through this terrible bill.  Those kinds of issues are pretty low on most retailers’ radar and generally have been overturned.

More importantly, MFA does nothing to solve this!

  • MFA only applies to 24 SSUTA member states and frankly, many of them are smaller states.  Update: Only 33% of U.S. population covered by Streamlined states (source Wikipedia/ 2010 US Census).

Many key states like California, New York, Pennsylvania, Texas and Colorado are NOT streamlined states and would not be able to collect tax under MFA without major changes to their laws, which would require legislation and likely take years to happen, IF they wanted to.  So MFA doesn’t even solve this issue for 5 of 6 states he lists.   

  • MFA only applies to businesses with $1 million or more in remote sales.  Smaller?  MFA does nothing to solve this for you!

 “The amount of uncertainty around sales tax law is unsustainable”

No, not really.  We’re quite OK without MFA, thanks.

“It is especially burdensome for retailers who sell through multiple channels, from online to mail order to phone”

Which are things Taxcloud is unable to support – Major cognitive dissonance here.  None of these things can be supported by Taxcloud for us, or anyone that we know.  They don’t support Amazon, Ebay, our order processing software or mail order catalog’s concerns.

“We urge you to meet your responsibility to online as well as local businesses by ensuring e-fairness legislation is enacted this year. This very achievable step would provide welcome relief to small businesses across the country.”

Relief how?  Because it used to be about fairness and a level playing field.  This “fairness” is of course a myth when proponents claim anywhere from 96% to 99% won’t be affected by the MFA.  Which also means the relief wouldn’t happen at all with this law.   Why relief won’t happen:

  • Smaller retailers will still not collect sales tax, Main St. brick and mortars will have gained nothing.
  • Online retailers below $1 million would not be spared this “unsustainable sales tax environment” since they’d be exempt from the MFA
  • Online retailers over $1 million would not be spared this “unsustainable sales tax environment” either, since most important states wouldn’t be affected by MFA for a very long time.
  • Online retailers over $1 million WOULD be hammered by new compliance obligations, compliance costs, audit risks and trying to comply with a massive state overreach for SSUTA states almost immediately upon passage.
  • Taxcloud would make a ton of money.  Which is why they continue to spin out new and ridiculous (sometimes false) statements as to why Congress should pass MFA so he can finally cash in.

 

If Congress must and is really serious about the issue, the Judiciary released a set of principles for a fair method of collecting taxes.  This was released in October 2013 (13 months or so ago at the time of this writing) and proponents have done absolutely nothing with them.  The only way forward to meet these fairness principles is to scrap MFA completely and start over and with some meaningful and REAL simplification, like 1 sales tax rate per state for remote collection.  But then you won’t need someone like Taxcloud.

Comments

  1. The only way to meet those 7 Judiciary principles on remote sales tax collection, is to have internet retailers do just as B&M’s do. Collect tax based on origin (rather than destination).

    If an e-commerce site was a physical location, you would go there, buy their product, and you would get charged tax based on where you were standing, not where the purchased good was going to eventually end up.

    So let’s keep everything the same, and apply it to the web.

    An internet retailer in Oklahoma will charge that state’s sales tax for all customers (regardless of location) and submit those collections to their own DOR. One rate, one submission, one audit. Easy. It’s no more, and no less, than what any B&M or B&C retailer would be required to do. Businesses would be complying directly with their own state government (and not 46). States without sales tax wouldn’t be forced to collect for other states. And it would create competition among jurisdictions, to attract businesses specializing in online retail, by offering lower sales tax rates.

    The only monkey wrenches would be: 1) taxation of customers without representation (but this occurs whenever you travel anyway); and 2) states will likely continue to try raiding their citizens for use tax on products they have shipped into their state. Perhaps an accompanying law banning all use tax could be enacted (highly doubtful).

Trackbacks

  1. […] it would be quite funny.  Rick Smith from MarketplaceFairnessCoalition.org just released a brilliant and devastating rebuttal of the letter.  You MUST read it and spread the word. We’ve already reached out to […]

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

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