Why you should be against the MFA – In Avalara’s own words

 Avalara is a venture-funded, leading provider of sales tax and compliance automation services and is a proponent of the Marketplace Fairness Act (MFA).  Here are Avalara’s own words on how burdensome and crushing sales tax compliance will be for remote sellers if the MFA passes.  The quotes are from their own publicly available white papers, but a large portion of the quotes are from their Sales Tax Survival Guide 2013.

 The MFA will introduce a crushing compliance burden on many small businesses

 “Considering the already impenetrable maze of sales tax collection rules, businesses face an uphill battle this year. Sales tax compliance in 2013 requires more resources and expertise than most small to midsized businesses possess.” [i]

 “Current state and federal proposals to change sales tax collection requirements on remote sellers such as online retailers add to an already difficult compliance environment for businesses.” [ii]

 “On average, sales tax compliance costs small and mid-sized businesses three to 15 cents per sales tax dollar collected. According to the U.S. Census Bureau, failure to account for that expense is one of the principal causes of small and mid-sized business failure in the United States. Why? The components of this compliance expense are difficult to pinpoint and often overlooked. The costs are hidden in staffing, compliance, accounting systems, information technology, and other business infrastructure.  In addition, sales tax compliance is a passthrough activity that adds no value to the bottom line. Sales tax collection requires you to act as an agent of each state in which you have nexus and collect and remit sales tax accurately. And if you don’t do it correctly, accurately and on time, your business can face heavy fines and penalties.” [iii]

 MFA will also impact catalogs, manufacturers, distributors & other remote sellers

 “What many businesses don’t realize, however, is that remote sellers such as distributors, manufacturers, and multi-level marketers might also be impacted” [iv]

 “Calling these laws “Amazon laws” is misleading since they apply to all remote sellers—defined as a businesses without significant physical presence in another state and that sells to customers using the Internet, mail order, or telephone. Cities, counties and states regularly change these rules, making sales tax compliance nearly impossible for most businesses” [v]

 “For easier accounting, a database or spreadsheet of exemption certificates should be easily accessible. The best solutions tie directly into your point-of-sale system, making it simple to verify that exemption certificates are current, valid and on file.” [vi]

 A customer quote from a manufacturer: “Our biggest audit hit was the exemption certificates and the no-tax sales.  So we decided to go with AvaTax Certs. We really feel strongly that it is going to be a good tool for us to help with audits, to reduce our liability with states, to reduce the frequency of state and multiple jurisdiction audits.” [vii]

 Audit Risks – Now for up to 45 states at once

 “Some businesses mistakenly believe that if they don’t make major mistakes they will not be audited. That is incorrect. Audits are often prompted by external causes, such as revenue shortfalls or changing tax rules.  States are becoming increasingly aggressive in auditing businesses” [viii]

 “To make up this lost revenue, many states are increasing audit activity to recoup lost use tax.” [ix]

 “If a notice is received and that person is on vacation, no one is available to handle the

concern and respond quickly to the request for information or clarification from

the state. Delayed responses can place you at risk of being selected for an audit

and can expose you to possible penalties and fees for not resolving the notice.

 

The state can restrict your business activities and even halt business until

the notice is resolved. One company didn’t realize they had received a notice

at their Texas location. The notice languished on someone’s desk unheeded. The

company found out when the state notified them that their ability to do business

had been shut down in that state. It was a scramble of extra time and cost in

penalties to bring the business back into active status in the state.” [x]

 

 Nothing about MFA compliance and “free software” is free or simple

 

“To effectively comply with sales tax regulations, you will need cooperation from several areas within your business:

•           Accounting must track and apply sales tax law changes across every jurisdiction where your company does business, as well as create and maintain detailed records of sales tax compliance activities.

•           Sales must help the company determine whether new locations or accounts will bring with them additional sales tax compliance issues.

•           IT must make changes to accounting systems and e-commerce systems, plus allocate adequate electronic storage for compliance records”  [xi]

 

 “Sales tax compliance tasks do not generate revenue and drain scarce resources” [xii]

 

 “At a time when businesses are trying to do more with less, utilizing staff time to stay compliant with multijurisdictional sales tax collection requirements is a poor use of resources.”  [xiii]

 

From a recent Avalara webinar questions and answer section :

“Speaker 2:  “A couple of folks have also asked about what they’ve read in the Market Place Fairness Act and that the technology will be provided to them, and I think that actually is pulled directly from SST in that this volunteer versus nonvolunteer concept. Using a CSP in Avalara is only one of a handful of CSPs. Can we talk to that at all? I mean the technology itself, is it provided? Do they get it for free? How does that look?”

 

Speaker 1: “But it’s easy to say the state is going to provide the information that you need to calculate it, but when the rubber hits the road and you really figure out what you’re being given in terms of what is currently available from SST states it’s fairly primitive. So, that’s where I’m going to just end it. Listen, if anyone thinks that the states are going to be in a position to provide a reliable, accurate rooftop calculation on an automated basis that’s not what the states are going to do.”  [xiv]

 


 

[i] Sales Tax Survival Guide 2013, Avalara.  Page 1.

[ii] Ibid.  Page 2.

[iii] Ibid.  Page 4.

[iv] Ibid.  Page 3.

[v] Ibid.  Page 3.

[vi] Ibid.  Page 6.

[vii] Ibid.  Page 10.

[viii] Ibid.  Page 7

[ix] The Challenges of Use Tax Compliance, Avalara.  Page 4.

[x] The Hidden Costs of Your Manual Sales and Use Tax System, Avalara 2011, page 3.

[xi] Sales Tax Survival Guide 2013, Avalara.  Page 8.

[xii] Ibid.  Page 9.

[xiii] Ibid.  Page 9.

[xiv] http://www.youtube.com/watch?feature=player_detailpage&v=0OUChFkv_C8#t=3300s 

Avalara Webinar “Sales Tax Showdown” May 2, 2013

 

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