Letters to the Editor: Reaction to Marketplace Fairness Act Editor's Note
Here's the reaction that we received regarding last issue's Editor's Note, which focused on the highly controversial Marketplace Fairness Act (i.e., the online sales tax law) that's currently being debated in Congress. Thanks to all who sumbmitted letters!
The Marketplace Fairness Act is awful, especially for small businesses. I work for an online and catalog arts-and-crafts company, and our primary market is churches (mainly down South) that do Vacation Bible School, with a small presence in libraries, schools and hospitals. Our biggest issue is how are we supposed to handle tax-exempt organizations.
We're located in Tonawanda, N.Y., which is right outside Buffalo. New York law states that we have to physically store a copy of an organization's tax-exempt form. We're also aware that each state has its own rules and regulations on how to handle tax exemption. How are we supposed to know all of them, and how are we going to handle all of that paperwork!?! On top of that, how are we going to handle the 9,000+ sales tax codes. With 8 full-time employees, this bill is going to put a lot of unnecessary strain on us. Our only hope is that they raise the $1 million dollar sales threshold to $5 [million] or $10 million so that we're exempt from them bill.
Mary C. Cheney
Director of Marketing
Guildcraft Arts & Crafts
I've been thinking about sales taxes quite a bit lately, just like many other small retailers around the country. Your latest column asked for my ideas, and, believe it or not, I may have even come up with a suitable solution, if only we can get Congress to agree.
First off, it's clear that Sales and Use Tax for end-user consumers and business has been upheld as a valid tax, and one that states definitely need to be collecting (especially in states as corrupt — er, debt ridden, er "financially challenged" — as Illinois, where I'm located. Collection of the tax is needed and required. I think we can all agree to this fact.
The problem for online retailers is having to collect tax for all of the 9,000+ taxing jurisdictions. The biggest problems include:
- not knowing the tax rates in each jurisdiction;
- not knowing which items/services are taxed in each jurisdiction;
- having to file different tax returns in 40+ different states;
- having each state with its own filing frequency, making it difficult to remember when you need to file to avoid penalties;
- dealing with tax-exempt organizations; and
- dealing with states that have no sales tax.
Now, what can we do about these?
First, simplifying the tax rates in each state is a real requirement. Eliminating the various rates by county, city and such should leave a single tax rate per state. This rate should be slightly lower than the current average rate, and it should be standardized across the board at a fixed percentage (say, 4.5 percent). States currently collecting less than this will see an increase in revenues accordingly, while states collecting less than this rate should ALSO see an increase in revenues due to increased compliance. Consumers may complain about paying slightly more, but they will only be those that are currently avoiding or ignoring the tax.
Second, simplifying the list of taxable items is critical. Again, simplification is the key here, such as taxing ALL products and NO services.
Third, simplify reporting. The SAME sales tax form must be used by EVERY state, and it should provide for a simple list of sales:
- taxable sales in each state;
- tax-exempt sales in each state; and
- services in each state.
Essentially, that's 150 separate numbers, which for smaller retailers may be zero for many entries. For retailers that do have sales in many states each quarter, simple financial reporting tools should be able to generate these reports in a heartbeat. For even smaller retailers without computerized systems, keeping a simple tally sheet for each state should meet the reporting needs.
Fourth, simply reporting frequency. Monthly tax filings are a nightmare for smaller businesses. These should be quarterly, just like payroll taxes!
Fifth, simplify tax remittance. By filing ONE form with the sales and taxes due to all states at the same time, we'd ALSO remit all tax revenues each quarter to our own home state. This would work for small businesses or multistate corporations. Each would be able to select their own "home state," and either file based on store location or for their corporate headquarters only. This simplifies tax payments by retailers, since they file only FOUR forms a year, and write only FOUR checks a year. This workload gets even easier with automated electronic reporting systems and electronic payments. Each state then receives the sales tax forms from all retailers in the state and aggregates the totals. So each state knows how much tax was collected on behalf of every other state. A simple Excel spreadsheet can then be used to calculate the net tax due between states. For example, if Illinois owes California $500,000, and California owes Illinois $400,000, then there's one payment per quarter from Illinois to California of $100,000. The rest of the revenues net out, and are already in the state coffers. This simplifies the workload for each state, too, since each state will make no more than 50 payments per quarter, and the typical average will be only 25.
Now, what about states with no sales tax? Instead of having retailers figure all of this out, we keep it all very simple and collect all sales taxes. Then just like with property taxes, consumers and businesses in these states can apply for a tax credit on their state return based on the tax they've paid. Consumers who want a refund can apply for it, and it can be refunded out of the money taken in by the states. As this is surplus funding anyway, this tax rebate is revenue-neutral for the state, and the minor increase in adding a line item to tax forms is minimal (and likely to be covered by those users not applying for the rebate).
Feel free to forward the "Bach Plan" on to anyone else you know, including your reps in Congress. Of course, if you see an area that it doesn't handle easily, I'd be happy to hear about that, too.
Goldstar Software Inc.
Generally, I enjoy reading your column, but found the comments made in the May/June issue to be a cop-out.
I'm an online merchant as well as the owner of a brick-and-mortar store. In fear of agitating some of your sponsors, you clearly overlooked the big picture. The proposed "Market Fairness Act" is nothing more than a way for the government to extort another $22 billion to $24 billion out of the economy. How is that fair for anyone? Do you expect the citizens of this great country will just find another $22 billion to $24 billion under their mattress?
Everyone loses with this proposal — online merchants, shipping companies, manufacturers and support services. Please call it like it is. The problem we currently have in our country is that our politicians have turned into a bunch of attics. Unlike the street corner person addicted to narcotics, our politicians are addicted to our tax dollars. It's time to oppose ANY tax increase.
I agree, the internet tax issue is a real problem. My biggest fear is the costly red tape that online retailers would have to endure to comply with the thousands of regulations. It will drive smaller operators out of business.
My solution, if there's to be any tax at all, would be to just have retailers charge their own state's taxes on their sales and pay their own state, since that's really where they're located. It would eventually even out for all states concerned. Otherwise, I think big players like Amazon.com could use its mega-resources to squeeze more little guys out. I have a big problem in my own situation. We used to be able to ship wine directly to the consumer, but our previous governor outlawed the direct shipping of wine by retailers to consumers. That killed 98 percent of my gift business. While it's illegal, retailers and "wine clubs" from other states continue to flood Michigan with wines. I'm lobbying to get the law changed to allow us to jump back into the competition. We're severely hampered by the current Michigan law.
Carrettino Italian Market & Wine
If I loan somebody some money and they seemingly blow it on purchases that I see as superfluous, and then that same person comes and asks for more money, I'll be less inclined to loan it to them, especially not until I get a return on the original loan. That's in essence what sales tax is. It's a loan to the government in exchange for protection. I'm less inclined to give more money to any organization that wants to throw away millions (billions?) of dollars on programs that either are "bankrupt" in a year or serve no lasting purpose. Until an audit is done on governmental spending, it should get no more of our hard-earned income than is absolutely necessary. If "the Government" decides that this is in "our" best interest, I'd be more interested in going after those businesses that refuse to keep their money in the United States. If they sell American, they should be rewarded for paying back into our system rather than sending cost into a foreign market.
Residential Sales Specialist
Eckard's Home Improvement
Our company used to be completely brick-and-mortar until 2005, when we launched our website. At that time, we were down to three employees, including my husband and I. We made our own website completely from scratch and are to this day still using that site, but we now employ around 30 employees. We're an Oregon-based company with no sales tax, and even though our ERP system is quite robust, we'll need to purchase an additional module and add possibly two additional employees to handle the 80,000 to 100,000 transactions we process per year. The idea of being responsible for tracking more than 9,000 sales tax codes and the yearly adjustment to those codes, and answering to each and every one of those states, is daunting. I'd like to suggest that if you're purchasing a product from a state, than the tax should go to that state. It would make e-tailers responsible to their state alone, and the bookkeeping nightmare would go away. Why does our government always have to create such complicated solutions? I'm in the process of contacting my Senator, and I appreciate you bringing this very hot subject to light!
Melissa J. Nolind-Martinson
A.P.W. Distributing, Inc