"...Most brick and mortar companies have some web presence now and if they don't, they will very soon or they will be out of business. Virtual market places are the direction our economy is heading and brick and mortar companies have to adapt. Something definitely needs to be done about the sales tax problem, but forcing debilitating burdens on remote sellers is not the right solution. It will end up hurting the future of our country's economy..." ---James Sutton, CPA, JD, LLM, American Association of Attorney-CPAs
Companies selling over the Internet and not collecting sales tax are at a distinct advantage over those who sell locally. Most agree that something has to be done, but requiring Internet sellers to collect and remit taxes to over 9.600 taxing jurisdictions is no solution. The proposed Act would lead you to believe that there is some great software that will solve the problem, but the reality is that it will place a huge burden on Internet businesses, and will drive many out of business. It will also create a huge barrier to entry into marketing over the Internet.
The American Association of Attorney-CPAs recently wrote a letter to to all members of Congress opposing the Marketplace Fairness bills in both the house and senate. Instead, the organization suggested to Congress that a reporting type of federal legislation would be achieve the same goals of (1) allowing the states to collect use tax on remote sales and (2) create a fair sales and use tax balance between remote sellers and brick/mortar retailers, while not placing extreme burdens on interstate commerce.
In a recent Linked-In post, James Sutton, CPA, JD, LLM summed it up:
"...when the brick and mortar company sells a product to the next customer, the company will be applying the same set of state/local laws as it did for the previous customer (and all the ones before and after). Alternatively, the remote seller has to find out where the next customer is located and then will be expected know the laws in that new customer's jurisdiction, which could be any one of over 9,600 different sales and use tax jurisdictions in this country.
Then the brick and mortar company has to only file one sales tax return in one state. The remote seller may have to file up to 45 sales tax returns that encompass the different reporting rules of the potentially 9,600 tax jurisdictions.
The brick and mortar company has to go through a single audit with one state every 3 to 5 years, if not less often. The remote sellers potentially have 45 audits to contend with. Even if the remote seller gets audited on average every 10 years, that would still be more than 4 audits a year. In only a few years, the remote seller will have to hire several full time staff just to keep up with the audits that will be happening on a constant basis.
Both companies will become liable for mistakes or missing paperwork, but the remote seller is exponentially more likely to make mistakes because of having to keep up with the different rules in over 9,600 jurisdictions.
The brick and mortar company can get a basic cash register to keep up with taxable and non-taxable sales and can hire someone out of high school to do sales tax returns. Can you imagine the experience and education level of the person that it will take to be capable of keeping up with the sales and use tax laws over the whole country as well as the reporting requirements? For smaller companies, the cost of compliance for a remote seller will be higher that the tax remitted to the states, which in and of itself implies something is fundamentally wrong with the proposed law.
So... while the brick and mortar company will have some overhead to keep up with one state's sales tax laws that apply virtually identically to every customer, a remote seller will have dramatically higher costs and higher exposer for mistakes. In other words, your hypothetical does not level the playing field between brick and mortar companies and remote sellers. The proposed legislation would put a huge portion of the remote selling industry out of business entirely, which is exactly what the brick and mortar companies want.
The federal courts and the Department of Justice will likely have extreme involvement because this would now be a matter of federal law, not simply a state sales/use tax law that we are dealing with. When a remote seller fails to remit the tax collected, the state due the tax money will likely not have jurisdiction over the company employees to file criminal charges. So the department of justice will very likely have to get involved here also.
There is a way to even the playing field and allow the states to collect the use tax without causing all these problems. A federal law that simply required the remote seller to report sales to the states. The states then could do letter audits to collect the tax from the state's own citizens."
The American Association of Attorney-CPAs recently wrote a letter to to all members of Congress opposing the Marketplace Fairness bills in both the house and senate. Instead, the organization suggested to Congress that a reporting type of federal legislation would be achieve the same goals of (1) allowing the states to collect use tax on remote sales and (2) create a fair sales and use tax balance between remote sellers and brick/mortar retailers, while not placing extreme burdens on interstate commerce.
In a recent Linked-In post, James Sutton, CPA, JD, LLM summed it up:
"...when the brick and mortar company sells a product to the next customer, the company will be applying the same set of state/local laws as it did for the previous customer (and all the ones before and after). Alternatively, the remote seller has to find out where the next customer is located and then will be expected know the laws in that new customer's jurisdiction, which could be any one of over 9,600 different sales and use tax jurisdictions in this country.
Then the brick and mortar company has to only file one sales tax return in one state. The remote seller may have to file up to 45 sales tax returns that encompass the different reporting rules of the potentially 9,600 tax jurisdictions.
The brick and mortar company has to go through a single audit with one state every 3 to 5 years, if not less often. The remote sellers potentially have 45 audits to contend with. Even if the remote seller gets audited on average every 10 years, that would still be more than 4 audits a year. In only a few years, the remote seller will have to hire several full time staff just to keep up with the audits that will be happening on a constant basis.
Both companies will become liable for mistakes or missing paperwork, but the remote seller is exponentially more likely to make mistakes because of having to keep up with the different rules in over 9,600 jurisdictions.
The brick and mortar company can get a basic cash register to keep up with taxable and non-taxable sales and can hire someone out of high school to do sales tax returns. Can you imagine the experience and education level of the person that it will take to be capable of keeping up with the sales and use tax laws over the whole country as well as the reporting requirements? For smaller companies, the cost of compliance for a remote seller will be higher that the tax remitted to the states, which in and of itself implies something is fundamentally wrong with the proposed law.
So... while the brick and mortar company will have some overhead to keep up with one state's sales tax laws that apply virtually identically to every customer, a remote seller will have dramatically higher costs and higher exposer for mistakes. In other words, your hypothetical does not level the playing field between brick and mortar companies and remote sellers. The proposed legislation would put a huge portion of the remote selling industry out of business entirely, which is exactly what the brick and mortar companies want.
The federal courts and the Department of Justice will likely have extreme involvement because this would now be a matter of federal law, not simply a state sales/use tax law that we are dealing with. When a remote seller fails to remit the tax collected, the state due the tax money will likely not have jurisdiction over the company employees to file criminal charges. So the department of justice will very likely have to get involved here also.
There is a way to even the playing field and allow the states to collect the use tax without causing all these problems. A federal law that simply required the remote seller to report sales to the states. The states then could do letter audits to collect the tax from the state's own citizens."
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