Ecommerce Vendor Rebuts Internet Sales Tax Bill Benefits

 

Sales Tax will be a new Tax on eCommerce Businesses

A recent article posted on Point of Sales News made the claim that H.R. 2775 , The Remote Transactions Parity Act ( RTPA ) will have no impact on eCommerce.  Fact is, it will put many eCommerce small businesses out of business.

Lets address the issues point by point:

The 1992 Quill decision does not declare a duty free zone.  It does address the nexus question.  If a business has physical presence within a State, then the business must collect Sales Tax for that State.  Quill does not remove nor forgive Use Tax obligations to consumers that did not pay Sales Tax at POS.  If you buy online, you owe Use Tax.  It’s a line item on most State Tax Forms. What RTPA attempts to do is remove 10th amendment rights forcing, for example, businesses in a non-Sales Tax State to collect Tax for The Several States DC, all US Territories, and all Sovereign Indian Nations.

What about the ‘free software’ provision of RTPA?  The claim Rep. Chaffetz makes is that it will be at zero cost to business.  Sorry Congressman, that is simply not true.  I can also get a free puppy, but they need to be fed and poop at lot too.  Here are a few of the un-addressed costs.  First, the software needs to be downloaded and installed.  Even the Win10 upgrade is not all ‘plug n play’ so it will take time (a cost) to install, check compatibility (a cost), enter taxability codes (another cost) and setup of Sales Tax remittances (another cost). While Quill was about mail order companies, to date, there are no software solutions for that industry. We will address the audit implications later.

Did you know that no two Certified Software Providers (CSPs) share the same taxability database? One would think that just scanning/entering a UPC code would be all that’s required, but software taxibility codes do not work that way.  RTPA requires that States provide ‘free’ software, yet do not specify commonality, other than use of a CSP.  So will CAs ‘free’ software be compatible with NJs ‘free’ software? For eCommerce sellers that sell on more than one channel (eBay, Amazon, Etsy, Websales) it will be a logistics nightmare as each venue will be using different software. (another cost to maintain and follow).

RTPA does not provide the provision for automated filing, nor can they.  While possible for those that sell on only one platform, it’s impossible for those that sell multi-channel, as amended returns would be required.  Amazon will gladly collect Sales Tax for it’s 3rd party seller program, but what they won’t do is file taxes on behalf of the seller. Once taxes are filed, the seller must report taxes each filing period, even if the amount due is $0.  If RTPA passes, no doubt eBay and other commercial platforms will provide the same lack of additional service. [another cost]

RTPA claims to provide exemption of audits, but that is simply not true.  What RTPA provides is exemption of any liability from the CSP for coding/software errors, but does not exempt the seller from selling a taxable item and listing it as tax exempt.  RTPA does exempt sellers with gross sales of $10M to $1M over a 3 year period.  Once passed, you can be sure that the bill will be modified to eliminate the $1M exemption over time.  How will States determine if a seller is exempt?  It’s called a Demand Letter, so sellers can look forward to receive demand letters (and the cost to answer them) from every State DOR in the Country.

While State Lawmakers are checking phone booths looking for loose change, RTPA will not produce the revenue lawmakers claim.

Proponents claim $23B in uncollected revenue, quoting NCSL (National Council of State Legislators). The number is totally false. The numbers come from a study by the Univ. of Tennessee in 2008 (revised 2012). It assumes no taxes have ever been collected. Broken down, $14B is for online sales, and the rest made up by B2B sales, auto sales, and private sales where goods cross State lines. 83% of online sales are dominated by the BigBox.coms now (Walmart.com, Target.com, BestBuy.com and Amazon.com (collects tax in 27 States [70% of all Amazon purchases to date are currently taxed]), so the number drops from $14B to less than $2.0B.

Most B2B sales involve items for resale, and therefore are tax exempt. Most auto sales have Sales Tax collected at time of registration, but U. of TN. never bothered to check that factoid, and it’s doubtful ‘private’ sales ever cross the $1M threshold.

As we can see, the revenues States project to collect, does not exist or has already been collected.

What about that argument that RTPA won’t effect eCommerce sales?  Lets talk about ‘Showrooming’ vs. ‘Webrooming’

Mom & Pop Main St. stores are demanding efairness, claiming they are selling at an unfair advantage, given that online sellers do not collect Sales Tax, which can be between 3-10% of the purchase price. The fact is polls have shown that only 2% of the buying public make their final purchase decision based on Sales Tax alone. That $400 item at the Brick & Mortar store can be had for $350 online. Even with Sales Tax, online is still the winner on price. While shoppers do walk into a store and compare prices with their smartphone (showrooming) the store owner has no idea if the final buy is made online with added shipping costs, or the sale made at a competitors store across the street (webrooming). Fact is, webrooming (shoppers who research first on the internet for a product) drives $1.2T in Brick & Mortar sales.

Is there an alternative solution?

Consider this:

Merchant accounts charge 2-5% on every tax dollar collected. Those funds do not belong to me or the Merchant
account, but rather the State DOR!  For a WalMart that does $10M business a quarter, at 6% Sales Tax, it would save over
$12K in collection fees.

My proposal is to have the merchant accounts (the credit card processors) collect the tax and remit directly to the
States (States pay related fees), along with a unified taxability database, based on product UPC codes. The
advantages are many:

~States receive instant funds.
~ It’s paperless, and cheapest of all software solutions.
~ no privacy issues.
~ No exemptions required.
~ Minimal law change needed to enact.

 

About the Author

Keith Yockey has been an online seller on eBay and websites for over 10 years and is the founder of the FaceBook Group Stop Sales Tax Fees Now

Proponents claim $23B in uncollected revenue, quoting NCSL (National Council of State Legislators) The number is totally false. The numbers come from a study by the Univ. of Tennessee in 2008 (revised 2012). It assumes no taxes have ever been collected. Broken down, $14B is for online sales, and the rest made up by B2B sales, auto sales, and private sales where goods cross State lines.
83% of online sales are dominated by the BigBox.coms now (Walmart.com, Target.com, BestBuy.com and Amazon.com (collects tax in 24 States), so the number drops from $14B to less than $2.5B
Most B2B sales involve items for resale, and therefore are tax exempt. Most auto sales have Sales Tax collected at time of registration, but U of TN never bothered to check that factoid, and it’s doubtful ‘private’ sales ever cross the $1M threshold.

As we can see, the revenues States project to collect, does not exist or has already been collected.

Webrooming vs. Showrooming
Mom & Pop Main St. stores are demanding efairness, claiming they are selling at an unfair advantage, given that online sellers do not collect Sales Tax, which can be between 3-10% of the purchase price. The fact is polls have shown that only 2% of the buying public make their final purchase decision based on Sales Tax alone. That $400 item at the Brick & Mortar store can be had for $350 online. Even with Sales Tax, online is still the winner on price. While shoppers do walk into a store and compare prices with their smartphone (showrooming) the store owner has no idea if the final buy is made online with added shipping costs, or the sale made at a competitors store across the street (webrooming). Fact is, webrooming (shoppers who research first on the internet for a product) drives $1.2T in brick & mortar sales.

http://dealnews.com/features/Know-Before-You-Go-A-Basic-Guide-to-Webroom…

MFA is bad law, plain and simple. Rep, Goodlett is correct to analyze his version of the bill for a more simplified solution.

There are many solutions, and need for revision to current proposals.

My proposal is to have the merchant accounts (the credit card processors) collect the tax and remit directly to the States (States pay related fees), along with a unified taxability database, based on product UPC codes. The advantages are many:
~States receive instant funds
~ It’s paperless, and cheapest of all software solutions.
~ no privacy issues
~ No exemptions required
~ Minimal law change needed to enact.

Merchant accounts charge 2-5% on every tax dollar collected. Those funds do not belong to me or the Merchant account, but rather the State DOR! For a WalMart that does $10M business a quarter, at 6% Sales Tax, would save over $12K in collection fees.

– See more at: http://www.thomhartmann.com/users/xcergy/blog/2014/11/ted-cruz-right-markeplace-fairness-act-bad-business#sthash.H0mvYdPE.dpuf

 

 

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