Online Sales Tax..Yes You Must Pay It...Or Do you?

I wrote about the topic of online sales tax, and how it affects interstate online commerce, at length a few months ago.

Due to this recent post I found elsewhere, I urge all online merchants selling anything online to ask their tax advisor and lawyers what to do so that you don't get burned, sued, or penalized going forward.

As I can tell, there is still no resolution from the time I last wrote but the online sales tax issue is certainly still an issue and far from being resolved.  States want their tax share of online transactions and other parties are battling against it; either way, don't get burned through ignorance, as pleading ignornace won't hold up in court, if it comes to that when a state asks an online merchant to pay their share of state commerce tax, online or offline.

Please read my prior post, Will New York Online Sales Tax Legislation Kill E-Commerce? for that important read, AND then the article below in its entirety.  After getting macro understanding of both, please seek appropriate tax and legal counsel in regard to your obligations as an online retailer to paying state sales tax for any of your online sales.

Thanks for reading and I hope this helps.

Chip Arndt

By Andrea James from SeattlePI.com

"For the countless consumers who buy online to avoid paying state sales tax, the party is ending.

Though Washington shoppers are on their honor to pay sales taxes each year on out-of-state purchases -- it's called a "use tax" -- most people either ignore the requirement or have never heard of it. Thus, states such as Washington are banding together to encourage online businesses to collect tax.

On Tuesday, Washington joins 18 other states that require some e-commerce businesses to collect sales tax. About 1,100 online retailers have volunteered to collect, and in return, Washington promises not to sue them for back taxes they might have owed. Three more states are on the way to adopting the law.

The Tuesday change, which is the result of a state law passed in 2007, has two major effects, Washington Revenue Department spokesman Mike Gowrylow said..."

<<<CLICK HERE>>> for this full and VERY IMPORTANT article and how Amazon is responding to all of this...as they are the ones who are fighting the online sales tax debate all the way to Congress

Internet Neutrality Issue Heats Up in DC and Wireless Carriers and ISP's Don't Like It

I have written about internet neutrality and spoke about it in Washington DC in 2006 at the Chamber of Commerce for Business Annual Summit in 2006. It was a big issue back then -- and I got into a heated debate with a lobbyist from Verizon when I mentioned that the wireless carriers cannot be allowed to be gatekeepers of information flow.  He did not like that phrase, "gatekeepers", but that is what they are and it is still a major issue for all of us, who use the internet to access information freely -- and have come to expect it.

Internet neutrality remains an important issue today for online merchants because, "feasibly", without internet neutrality laws in place, wireless and cable carriers could favor one merchant's data getting to consumers before others, ergo those who pay more!  Wireless carriers and cable companies battle to keep control of the argument and say they won't do this, but when precendence is set, it is set.  So we all better be concerned about this and keep an eye on what Congress is doing to resolve issues as they relate to internet neutrality, or as many call it, net neutrality.

And for those who think that this is not a HUGE issue, as it relates to protection of the freedom of flow of information, check out Andree Toonk's article about wireless and cable carriers in Canada experimenting with "tagging" web pages and information before letting the public have access to them. It is scary where all of this could lead.  <<<CLICK HERE>>> for that article.

I would like to share new information with all eTaildTail readers in regard to new legislation proposed by Democrats to protect the freedom of flow of information, as reported by eTaildTail friends over at Online Media Daily and Wendy Davis.

-- Chip Arndt

New Net Neutrality Bill Prohibits Blocking, Degrading

by Wendy Davis -- May 9, 2008

"Rep. John Conyers (D-Mich.) introduced a net neutrality bill Wednesday that would prohibit Internet service providers from blocking or degrading access to any "lawful content."

"It shall be unlawful for any broadband network provider ... to block, to impair, to discriminate against, or to interfere with the ability of any person to use a broadband network service," states the proposed measure, The Internet Freedom and Nondiscrimination Act of 2008 (H.R. 5994).

The bill would allow ISPs to manage traffic, provided they don't discriminate between their own content and content by...

<<<CLICK HERE>>> to read full article by Wendy Davis at Online Media Daily after the jump."

Will New York Online Sales Tax Legislation Kill E-Commerce?

What better day than today to talk about taxes? :-) :-)

The headline for this entry may be drastic, but the bill that passed in the New York State legislature last week may have huge ramifications to e-commerce/mobile commerce, to how online retailers interact with their clients, and to how consumers shop online into the future. 

The good news, if you are one who does not like online sales taxes, is that this recent move by the state of New York is not new. The Illinois legislature demanded onlines sales tax to be paid in 2003 and some larger retailers actually voluntarily paid these taxes to some states that demanded it. But, overall, there was no logical enforcement policy for all online merchants to pay the online sales tax, so people have simply ignored attempts by several states to enforce their laws and ensure that companies and consumers pay online sales taxes for purchases by residents in their respective state.

Furthermore, there is a lobbying organization representing 30 states that has tried to enforce an online sales tax code, but they started in 2000 and have had little success in passing legislation at the national level or enforcing laws at the state and local level.

We all know that one of the greatest benefits to online shopping is that customers do not pay sales tax for their purchases and that online merchants do not have to "worrry" about dealing with, and setting up, technology infrastructure to ensure that they pay said online sales tax to states.

I am unsure if the "no online sales tax" rule of thumb for purchases is fair to all parties involved, especially the local governments, which rely on sales tax to provide services to their citizens, but we can all agree that the lack of online sales taxes certainly helped grow e-commerce/m-commerce and it "was" a huge benefit to the consumer and the online merchant, who could outprice any brick and mortar store simpy by selling online "sans" a sales tax.

Now what? And why is the New York decision worrisome?

As reported at DMNews.com: "Late last week, New York legislators approved a bill that will require out-of-state online retailers to begin collecting sales taxes on purchases shipped to New York addresses, meaning that companies such as Amazon, which has no employees or operations in New York, will be required to collect state taxes because several of its affiliates live in the state. This will effectively end tax-free online shopping in New York.

While the New York Governor's office was not available for comment, published reports have noted that Governor David Paterson is expected to sign the measure.

At this point, the key question is not whether other states will attempt to copy New York's aptly dubbed Amazon Tax, since it's really too early to tell, but more so, if the measure will avoid a legal challenge..."

<<<CLICK HERE>>> to read the full story, it is a great read and an important read for all online retailers, if for nothing else, to make sure you are obeying the law when selling and shipping products to New York State residents and zip-codes.

Special Note: I tried to find the actual piece of New York legislation, for you all to read, but I could not find it -- my "Google Skills" need honing.  If any of you find it, please let me know and I will post it. In its place, this source outlines succinctly what the online merchant is up against when selling and shipping into New York online. <<<CLICK HERE>>>.

The reason that this particular piece of legislation carries more weight, than prior attempts by other states to enforce an online sales tax policy, is that this is NEW YORK.  It is really that simple. 

Eventhough many states before have tried to collect online sales tax for purchases, the prognosis of a long drawn out court battle over the constitutionality of an online sales tax and the associated costs to implement online sales tax collection was too great a cost for states to incur, so they have not pursued it. New York is New York and they have the resouces and will power to see this piece of legislation through, all the way to the Supreme Court of The United States, if they want.

The silver lining to all of this and the recently passed New York State piece of legisaltion, for those online merchants who would like to see this whole matter disappear, is:

1. The New York online sales tax provision seems only to apply to those companies with more than $10,000 per year of sales sold through affiliates in New York. New York has now changed its tax regulations to say that a retailer with more than $10,000 a year in revenue has "nexus" if it has sales affiliates in the state. Sales affiliates are companies that receive a commission for promoting another company's products and driving customer traffic to its site.

2. Amazon, a billion dollar company, is camped out in the state capitol of Albany, New York fighting this piece of legislation with lots of money -- as they are the main target of this piece of legislation.

3. There is legal precedence that favors "no online sales tax" and does not help the new New York online sales tax legislation argument, namely the United States Supreme Court Ruling in Quill v. North Dakota, -- Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992) -- in which the judges said that the arcane web of state and local tax codes puts an unreasonable burden on interstate commerce, and finally

4. Other states have chosen not to follow New York's path in part because of legal uncertainties, the cost of fighting a legal battle, the cost of implementing the process to collect the "owed tax" from online retailers, and an economy that certainly does not need any new tax burdens placed on consumers. 

Would you want to be the legislature that passed a new tax in 2008 or 2009?

Bottom line....

Online retailers should abide by the law and ensure that they are not in conflict with the present ruling by the New York legislature, in regard to paying sales taxes on online sales to New York residents. However, I believe that this piece of legislation will not hold up in court.

In the meantime, abide by the New York law (my advice always), do what is right, and, if this piece of legislation is repealed, online merchants I am sure will be paid back.

-- Chip

Retail Industry Groups Square Off in Internet Sales Tax Debate

Okay this post may be boring to some, but it is very important for all online retailers, small to large, to have as sense of the timing of how online ecommerce taxation will happen, if it happens (it will), and how it might affect your online business and profits!

Congress is involved -- so the good news is that all of this will probably take years.  :-)

The bad news is that it will happen and more taxes will be taken from each online sale.

In my opinion, it is just a matter of when Congress is able to sort out all of the various taxes online merchants will have to pay and to which jurisdictions they have to pay them (state, local, federal...etc..).

The key thoughts I gleaned from this post are as follows:

"Current law only requires sellers to charge sales tax for customers located in states where the seller maintains a store or other physical presence. Although current law also requires the customers to pay their own “use” tax if the seller doesn’t collect a sales tax, there has been no effective means of enforcing use taxes, according to tax experts.

The Direct Marketing Association contends that the proposed law would make it difficult for direct merchants to compete. “Expanded and overlapping state tax jurisdictions would seriously jeopardize the continued growth of electronic commerce in the United States, and it would impede the access of small and medium-sized companies to a nationwide market,” George Isaacson, tax counsel for the DMA, told the Congressional panel. Isaacson noted that the legislation fails to reduce the more than 7,500 tax rates across the U.S., that it doesn’t reduce the “burden” of tax collection, tax remittance and tax audits facing interstate marketers, and that it fails to guarantee fairness in the compensation of sellers for the costs of tax collection and remittance."

Please read below for entire article.

-- Chip

<<<CLICK HERE>>> for full article

Retail Industry Groups Square Off in Internet Sales Tax Debate

"At a Congressional hearing last week, retail industry groups representing store-based and direct retailers presented opposing views on whether Congress should move ahead with a proposed law that would mandate collection of sales tax on goods sold online and in catalogs.

“We are here to ask you to level the playing field between sellers that collect sales tax and those who cannot be required to collect the tax because they do business in the community on a virtual rather than physical basis,” said Wayne Zakrzewski, vice president and associate general counsel-tax, for J.C. Penney Co. Inc., No. 12 in the Internet Retailer Top 500 Guide. “Many of our competitors do not collect, which gives them a competitive advantage. This is not because they are innovative or provide incremental value to the consumer, but because the states do not have the ability to require collection of a tax that is due from the consumer.”

Zakrzewski spoke on behalf of the National Retail Federation, which represents large retail chains as well as other types of merchants. But while the NRF argues that a mandated sales tax on direct merchants would be more fair, the Direct Marketing Association, which represents web and catalog merchants, contends that the system as proposed would “seriously jeopardize” the continued growth of e-commerce in the U.S. because of the costs involved in collecting and remitting sale tax across more than 7,500 tax jurisdictions.

The hearing covered the Sales Tax Fairness and Simplification Act (H.R. 3396) introduced in August by Rep. William Delahunt (D, MA). The proposed law recognizes the Streamlined Sales and Use Tax Agreement, commonly referred to as SST, as an effective means of providing for interstate collection and remittance of sales tax. If the legislation is enacted into law, states that abide by the SST’s system of defining, collecting and remitting sales tax could mandate that sellers from other states process sales taxes for all customers within the SST member states. As of next month, the SST will have 17 states as full members, plus another five that support the SST but have yet to implement its policies.

Current law only requires sellers to charge sales tax for customers located in states where the seller maintains a store or other physical presence. Although current law also requires the customers to pay their own “use” tax if the seller doesn’t collect a sales tax, there has been no effective means of enforcing use taxes, according to tax experts.

The Direct Marketing Association contends that the proposed law would make it difficult for direct merchants to compete. “Expanded and overlapping state tax jurisdictions would seriously jeopardize the continued growth of electronic commerce in the United States, and it would impede the access of small and medium-sized companies to a nationwide market,” George Isaacson, tax counsel for the DMA, told the Congressional panel. Isaacson noted that the legislation fails to reduce the more than 7,500 tax rates across the U.S., that it doesn’t reduce the “burden” of tax collection, tax remittance and tax audits facing interstate marketers, and that it fails to guarantee fairness in the compensation of sellers for the costs of tax collection and remittance.

Barbara Tulipane, president and CEO of the Electronic Retailing Association, which represents primarily TV-based merchants, made a similar argument in a statement last week. “Small business expansion, fostered by Internet marketplaces like eBay as well as e-retailers throughout the country, is a major job creator helping to keep the U.S. economy moving forward,” Tulipane adds. “Making electronic retailers responsible for computing, collecting and remitting tax for thousands of taxing jurisdictions with different rates and coverage is unfair and will significantly harm the growth of e-commerce.

But J.C. Penney’s Zakrzewski contends that Delahunt’s bill provides for a “significant reduction in the burden imposed by the states sales tax system” in participating states. In a statement, the NRF added that the Streamlined Sales and Use Tax Agreement “provides uniform definitions, a taxability matrix showing what items are subject to tax,” and that the sales tax plan provides for assistance from software companies that specialize in collecting and remitting sales tax across multiple jurisdictions.

He added, “Passage of H.R. 3396 into law would be the appropriate next step to a modern, fair and responsive sales tax system across all participating states and sellers.”

Delahunt’s bill is similar to one introduced in the U.S. Senate by Michael Enzi (R, WY). Neither bill, however, is expected to pass in the current Congress, which extends through next year, says Daniel Schibley, a state tax analyst with CCH Inc., a Riverwoods, IL-based publisher of tax and legal information. “I don’t think these bills have any chance of passing in the current session of Congress,” he says. “The idea behind introducing them is to keep the issue alive while building support for legislation.”

US Courts Protect Online Consumer Transaction Information

Excellent news for consumers and all Americans, in my opinion.  US Courts have ruled in favor of protecting citizens' online transaction records through a ruling in regard to Amazon customers and transactions therein.

This is important for online retailers as we now have precedent judgements that give the online consumer greater comfort that "Uncle Sam" does not have blanket rights to "see into our lives," which I think will translate in greater comfort with online shopping.

As quoted by Wendy Davis, who covered the story:

"In a sweeping ruling, a federal court in Wisconsin said that the government isn't entitled to view Amazon's records of book purchasers to investigate whether an online seller has evaded taxes.

"It is an unsettling and un-American scenario to envision federal agents nosing through the reading lists of law-abiding citizens while hunting for evidence against somebody else," wrote federal magistrate Stephen Crocker.

In the case, prosecutors had sought to subpoena Amazon records of sales by former Madison official Robert D'Angelo, under investigation for tax evasion and mail/wire fraud. Prosecutors initially sought all of Amazon's records relating to D'Angelo -- a vendor who sold around 24,000 used books via Amazon. Eventually, that request was whittled down to 120 book buyers.

Instead, Crocker ordered that Amazon contact some of D'Angelo's purchasers and ask them if they wanted to volunteer as witnesses. In his broadly worded decision, Crocker wrote that letting the government snoop on people's reading lists wouldn't just damage consumers' privacy, but also their willingness to shop online.

"If word were to spread over the Net -- and it would -- that the FBI and the IRS had demanded and received Amazon's list of customers and their personal purchases, the chilling effect on expressive e-commerce would frost keyboards across America. Fiery rhetoric quickly would follow and the nuances of the subpoena (as actually written and served) would be lost as the cyberdebate roiled itself to a furious boil," he wrote. "Well-founded or not, rumors of an Orwellian federal criminal investigation into the reading habits of Amazon's customers could frighten countless potential customers into canceling planned online book purchases, now and perhaps forever."

Now we have two federal US court decisions that have ruled that consumers' privacy interests trump government's attempts to blanketly subpoena information that many Web users consider private.

The other case: in 2006 federal district court judge in California nixed the government's attempt to seek Google's records about search queries. The court held that even though the government wasn't requesting individual users' names, the queries themselves could have contained information to reveal the identities of the searchers.

-- Chip