{Published in the Colorado Springs Gazette, May 9, 2013}
This week, I am ashamed to say, the U.S. Senate passed bill 743. It’s supposed to be cited as the ‘Marketplace Fairness Act of 2013. ‘ But if I called it that, I’d be violating every principle of integrity I claim to stand for. Lying is lying, regardless of who does it.
The rationale for the law is pretty simple. Businesses collect sales taxes for the states where they are located. Long-established legal precedent requires something called the ‘nexus test, ‘ used to determine whether or not a business is considered located in a state and therefore required to collect sales tax. Physical presence is pretty straightforward to figure out, so this worked fine for a long time.
Then the Internet was invented, and with it online commerce. With a click of a mouse, you could buy something from a company thousands of miles away with no presence in your state at all. Ergo no sales tax.
This upset a lot of people, but technology has a way of doing that. An Internet luminary once quipped ‘The Internet treats censorship as damage, and routes around it. ‘ I would argue that, to the Internet, taxation is just another form of censorship.
It is true that the present system is unfair, although the degree of unfairness is unclear. People don’t buy online to save a few bucks on sales taxes. They buy online because it’s convenient, because they can do it in their pajamas on a snowy day, and because it eliminates the middleman. Forcing Florida businesses to collect California sales tax won’t change that.
But if you’re bothered by the tax fairness problem, there is more than one way to solve it. You could grant in-state retailers sales tax relief. You can get spending under control to reduce ‘revenue enhancement ‘ pressures. You can move to an origin-based system of sales taxation. ‘Tax fairness ‘ doesn’t have to be achieved by taxing group A more. It could be achieved by taxing group B less.
Nor is tax fairness the only value to be considered. What about tax competition? Tax competition is one way to keep state government budgets in line and is an important part of our federalist system. But SB 743 puts yet another nail in that coffin. It creates a de facto tax cartel.
Under this bill, the only way state governments can determine how much taxes they are owed is to share information about transactions outside their borders. The bill includes provisions that would allow state governments to gather data connecting customer addresses with customer purchases and agree to share it with each other to determine how much tax to collect. Indeed, to comply with its objectives, they wouldn’t have any choice. Any incentives for states to compete with each other through lower tax rates goes out the window.
And did I mention the privacy problems? Do you really want some state Department of Revenue knowing about that lacy little thing you ordered from victoriassecret.com? Would you trust them to keep your credit card number safe, just because, well, they’re supposed to?
Fortunately, there’s a better way. I’m confident House Republicans will grow spines and kill this thing. But that doesn’t mean we should ignore the problem. Colorado should move its sales tax system in the opposite direction of Senate Bill 743. Instead of becoming increasingly destination-based, we can move to origin-based sourcing. Collect Colorado sales taxes on sales that originate in Colorado, and stop worrying about where the customer lives or where the product is going. Do so at a uniform, low rate. Get a handle on spending. Be a role model for other states to do the same.
Or give up your privacy, your wealth and a little bit of your liberty, in the name of ‘tax fairness. ‘ Colorado, it’s your call.
I’ve been reading a lot recently about proposed (or soon-to-be-proposed) federal legislation regarding online sales tax collection. But what I’ve read has mostly focused on Amazon and other large businesses, and I’d like to take a moment to focus on those who will benefit most by the proposed legislation: small business owners.
I’m a small business owner myself. My wife and I own and operate a small sheep farm in upstate New York. We sell our wool products online, and also frequently visit festivals and fairs in other states to sell our livestock, wool, and yarn as well. With every sale, I am faced with the complex and exhausting task of figuring out how much sales tax I need to remit and filling out all the sales tax return forms.
The Marketplace Fairness Act (MFA) provides an incentive for states to simplify their sales tax laws, so that tax categories and definitions are standardized from state to state and there’s just one simplified electronic sales tax return for all states. These simplification measures make a huge difference for me: no more trying to figure out if wool is in the same tax category in different states, no more filling out the wrong form, no more needless hours or money spent looking up all the different sales tax rates and figuring out which ones apply to which products.
At this point you may be wondering how the MFA accomplishes all this. After all, the bill simply permits states to require out-of-state retailers (including online retailers) to collect sales tax. But the key is, only those states that have simplified and standardized their sales tax laws would be able to do so. In essence, the bill says that states can require out-of-state retailers to collect sales tax, but only if they make it easy for retailers like me to do so.
A key part of making it easy for retailers to collect sales tax is technology. As one might expect, there are online services available to manage and even automate sales tax for retailers, from calculation to collection to filing. The MFA plays a key role in helping these services and states work together. It’s even requires a certification process for sales tax management services to ensure that every state desiring collection authority must test the services and verify they adhere to states laws. For the Streamlined States, at the end of the process, if the service passes, the company offering it becomes a Certified Service Provider – hopefully the certification programs prescribed in the MFA for non-streamlined states will adopt a similar system. The features CSPs offer can vary, but for the most part they manage every aspect of sales tax for the retailer—they calculate the sales tax due, file all the jurisdictional sales tax returns, manage tax exemptions, and even take care of any audits.
Just over a year ago, I grew so tired of having to deal with the current complex and cumbersome task of remitting sales tax to other states that I began searching for some kind of solution on the internet. Fortunately, I quickly found a free service called TaxCloud, a SSUTA CSP service, which began managing my sales tax calculation, collection, and remittance for every tax jurisdiction in the United States. It was not only simple—it’s completely free of charge.
The combination of this technology and the states’ simplification efforts ultimately unravels a huge web of entangling forms and paperwork, freeing businesses like mine from bureaucracy, promoting efficiency, and increasing productivity and, most importantly, profitability. They make dealing with sales tax much, much easier for small business owners.
Small business owners like me truly benefit from the simplification of current cumbersome filing requirements and associated expenses. I want more and more states to simplify their sales tax laws, and I know that we need the MFA to make that happen. Therefore, I support the Marketplace Fairness Act.
As I’ve learned more about the issue I’ve discovered there are many other reasons to support the MFA, but the reason I first found myself supporting this legislation is not one that I’ve seen addressed anywhere: it makes sales tax compliance very easy for small businesses (and probably for large ones, too). It’s particularly important for retailers who sell in multiple states, whether through a website or catalog or at state fairs and festivals.
We all know that our states are facing major budget issues and need the revenue that the MFA will provide. Don’t get me wrong; I dislike taxes just as much as anybody—but I also don’t like finding out that that the ballot initiatives we voted for in my community are going unfunded because remote retailers are not required to collect the tax we already approved.
To be clear, the MFA does not create any taxes or raise any taxes. It simply makes collecting the tax already due much easier for the millions of small business owners just like me. Consumers also benefit because they are relieved of the obligation to keep track of and remit the sales tax due on their individual state tax returns.
Congress, I urge you—enact the Marketplace Fairness Act.
This is a very informative and well-reasoned response. I hope Dr. Fagin could weigh in on it …