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Are Online Sales Taxes Confusing Consumers?

Posted in General News / Technology, Online Sales Taxes, Retail, tagged , , , , , on July 26, 2011 | 2 Comments »

The rise in new online sales tax bills in states across the nation has been a top story within the e-commerce and business press over the course of the past year or so.  It seems, however, that not everyone is reading those stories.

In a newly released survey sponsored by the International Council of Shopping Centers (ICSC), 64 percent of consumers in states that have enacted new internet taxation laws either don’t know or do not believe that they’re required to remit sales taxes on web purchases when a retailer does not collect them on their own.

“The results of this study point out that there are widespread consumer misperceptions about the requirement to pay sales tax on Internet purchases,” said Michael Kercheval, CEO and president of ICSC.  “The data shows people are confused as to whether or not they are – or should be – paying tax on online purchases.”

While the study does not elaborate on why so many people are confused about the existence of the new taxes (we’ll get to that later), it does contain some other relevant important data.

For example, 93 percent of the 1,000 consumers polled said they would continue to shop online if taxes were collected at the point of purchase, and even in the event of 100 percent compliance on online sales tax collection among merchants, consumer online shopping behavior would not be materially or substantively impacted much.

Despite that, it would appear that online shopping has not completely made traditional shopping and retail storefronts obsolete just yet.

Nearly three quarters of the consumers believe brick and mortar stores have an “important role to play in the 21st century marketplace.”  And in that vein, many of the respondents selected “choice” and “convenience” as key decision criteria, in addition to price, when contemplating a purchase.  This indicates at least a continued partial reliance on brick and mortar shopping options.

From our vantage point, the ICSC seems to be supporting online sales taxes in order to level the playing field with brick and mortar retailers, which is to be expected given the scope of their work.  The study’s press release openly touts the Main Street Fairness Act, which we’ve covered here before, calling it a first step toward establishing that marketplace for a new century.

Still, we can’t help but wonder if this study was more focused on the confusion surrounding new taxes or simply a way to beat the drum for brick and mortar retailers on the whole.  Granted, the ICSC does adequately identify a problem here, citing low consumer compliance with tax rules for online purchases.  And yes, the study does make the next logical connection: that such consumer misconceptions have led to an unfair advantage for online retailers over their brick and mortar counterparts.

But why does the ICSC then go on to tout mostly vague data about the importance of those brick and mortar stores rather than delving deeper into the obvious question that arises from this study (at least in our opinion):  why are consumers confused about their online sales tax responsibilities?  Is it a question of poor communication between lawmakers, regulators and their constituents?  Are shoppers feigning ignorance?  Are retailers not informing shoppers of their tax duty?  Is the confusion a by-product of hastily written and implemented laws that don’t include adequate considerations for enforcement?

Now look, economists, we are not.  But when nearly two-thirds of the shoppers in states using online sales taxes are in the dark on the issue, it certainly begs the question: what’s the point of a tax if no one knows about it and thus, isn’t paying it?  If online sales taxes are to fulfill the aim they’re designed for, then there needs to be a better analysis and reconciliation of this confusion that the ICSC says is rampant among shoppers.

What’s your take?  Why are consumers confused about paying online sales taxes?  Leave us a comment with your response.

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Amazon, Overstock Pull the Plug on California Affiliates Following Online Tax Passage

Posted in Online Sales Taxes, tagged , , , , , on June 30, 2011 | Leave a Comment »

In what’s become standard operating procedure for the two e-tail giants, Amazon and Overstock have wasted no time in terminating their respective affiliate programs in California after the state become the seventh in the nation to initiate an online sales tax yesterday.

California Governor Jerry Brown signed the law into effect Wednesday as part of a broader piece of legislation addressing state budget issues, calling it “a common sense idea.”

As is the case with similar laws in other U.S. states, the new law enables California’s tax board to collect sales taxes from out-of-state retailers that operate affiliate programs in the state.  Proponents of the measure estimate that it could add up to $317 million a year in revenue to the state’s coffers.

Naturally, brick and mortar merchants in California are thrilled with the decision, saying it is long overdue and that it should finally level a playing field that has been slanted in the direction of the likes of Amazon and Overstock all along.

On the other side, things aren’t quite as rosy.  Following through on promises they both made leading up to the law’s passage, Amazon and Overstock quickly announced the end of their California affiliate programs.

“We oppose this bill because it is unconstitutional and counterproductive,” Amazon said in an email to state affiliates notifying them that the program had been terminated.  “It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors.”

Overstock, which reportedly did $1 billion in e-tail business in 2010, offered a very similar proclamation.

“We think this law is unconstitutional,” said Mark Griffin, the company’s general counsel.  “We sent a final note to our California affiliates today. It’s a business decision that we had to make.”

California’s Board of Equalization estimates that there are more than 25,000 affiliates in the state, 10,000 of which worked with Amazon.  Those people will now need to find alternative means of income in the wake of the law’s passage.

Despite pulling out of the state, Amazon may not be completely off the hook.  The law has a secondary provision included that forces retailers with subsidiaries in California to collect sales tax as well.  Amazon has several subsidiaries in California, such as Lab126, which develops the Kindle e-reader.

California joining the six other states nationwide that have enacted online sales tax laws is certainly foreboding for retailers and affiliates everywhere else.  If even the nation’s wealthiest state must resort to implementing such a law in order to try to dig itself out from a mountain of debt, it stands to reason that the floodgates could soon open as smaller and less wealthy states do the same.

Leave us your thoughts and comments!

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Texas Online Tax Bill Stalls with Governor’s Veto

Posted in General News / Technology, Online Sales Taxes, tagged , , , , on June 1, 2011 | Leave a Comment »

Striking at least a temporary blow to proponents of state-proposed online sales taxes, Texas Governor Rick Perry has vetoed a bill authored by his colleagues in the legislature intended to enact such taxes on web and catalog retailers in the state.

House Bill 2403, originally introduced by state Rep. John Otto earlier this year , was designed to simplify the parameters of a retailer’s in-state physical presence and thus, their requirement to pay sales taxes.  Most significantly, the bill would have required web retailers to remit sales taxes if they were operating distribution centers in the state through a subsidiary.

Perry called for a ‘thorough policy discussion’ between Texas lawmakers, consumers, retailers, and technology experts to find a more equitable solution to the issue as part of his veto.

“I have serious concerns about the impact and appropriateness of House Bill No. 2403,” Perry said in his veto statement.  “In particular, I believe this legislation risks significant unintended consequences.”

An in-state physical presence, which is required by the U.S. Supreme Court in order for a state to collect sales taxes from retailers, is also referred to as ‘nexus’ within the parameters of the situation.  Otto’s bill seemed to specifically target retailers that skirt the nexus issue by running distribution centers and other facilities through a subsidiary.  Not surprisingly, one of the most noteworthy retailers to engage in such a practice, Amazon, was pretty happy with the veto.

“We’ve long supported a truly simple, national approach, evenhandedly applied,” said Amazon’s vice president of global public policy Paul Misener.  “This is federalism at work and many states are making the right decision to seek a federal solution.”

Perry’s veto doesn’t come as a complete shock, particularly due to his reputation as a staunch pro-business/anti-tax Republican.  He also harshly criticized state Comptroller Susan Combs when she sought nearly $270 million in uncollected sales taxes from Amazon back in February.

The Texas Legislature cannot override the veto because it was signed at the end of the legislative calendar on May 30, but that doesn’t mean the issue is dead.  Lawmakers are contemplating adding several components of Otto’s bill—particularly those pertaining to physical presence—into another piece of legislation, Senate Bill 1, which addresses a number of state fiscal matters.

Thoughts on the action in Texas? Leave us your comments below!

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Next Stop for the Online Sales Tax Gravy Train—Arkansas

Posted in General News / Technology, Online Sales Taxes, Uncategorized, tagged , , , , on April 4, 2011 | 2 Comments »

We’ve been warning our readers for awhile that the proliferation of state online tax legislation was only going to continue here in 2011.  We weren’t kidding.

Lo and behold, Arkansas last week became the latest state to move closer to an affiliate tax that so many other states have either adopted or are in the process of considering.

SB 738, also known as both the Amazon Tax law and the Main Street Fairness law down in The Natural State, passed the Arkansas General Assembly last week and has been sent to Governor Mike Beebe’s desk.   Beebe, a Democrat, has already gone on the record supporting the bill so final approval should come sooner rather than later.

Mirroring similar legislation in other parts of the country, the measure’s primary action would be a requirement that retailers begin collecting sales taxes if they have affiliate partnerships within the state’s borders and do more than $10,000 a year in sales.

Once Beebe signs the bill into law, Arkansas will become the fifth state overall to enact affiliate/sales tax legislation, following in the footsteps of New York, North Carolina, Rhode Island and Illinois.

Illinois is the only one of the bunch to actually pass such a bill into law here in 2011, but according to some experts, there are similar pending bills up for review in at least another ten states across the nation right now as well.  As such, we could be seeing the first of a steady stream of new state tax laws over the coming months that will dwarf those passed just a year ago.

Of course, the biggest question now (as has been the case in those other four states) is how the Arkansas bill will affect Amazon.  The very fact that Amazon’s name has found its way into the bill’s aliases proves that the company is in the crosshairs of this kind of legislation more than any other. Amazon’s actions in response to online tax bills lately have served as an example for other retailers affected by the bills as well.

We couldn’t find any official response from Amazon about SB 738 (while ironically, Walmart, which calls Arkansas home, supports it) but it’s not hard envision the company severing ties with its Arkansas’ affiliates, just as it has done in several other states.  Simply put, it makes more financial sense for Amazon to just pull out of states with tax laws it considers burdensome rather than stick around.  We wouldn’t be surprised to see Amazon officially end its’ affiliate relationships in Arkansas within a month of Governor Beebe’s approval of the new law.

But what do you think? Leave us your thoughts on this latest online sales tax development!

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Amazon Gets Socked with Huge Tax Bill

Posted in General News / Technology, Online Sales Taxes, tagged , , , , , on October 26, 2010 | Leave a Comment »

We’ll say this about the people in Texas. They don’t shy away from going after big companies when they feel like they’ve been slighted.  Early in September we told you about the state’s attorney general opening up an investigation into Google for possibly manipulating its own search results for a competitive advantage.

Now, Internet Retailer is reporting that the state of Texas has another tech giant in its crosshairs: Amazon, which once again finds itself at the center of a firestorm over online sales taxes.

Apparently, the Texas Comptroller’s office sent Amazon a bill back in August for a cool $269 million.  Let’s let that sink in for just a second: $269 MILLION.  The bill is for uncollected sales taxes on transactions made by Texas residents between December 2005 and December of last year, according to an Amazon filing with the Securities and Exchange Commission.

Now, our regular readers know we’ve spent plenty of time analyzing the internet taxation issue. But to find out that a single company is supposedly on the hook for $269 million in unpaid taxes to a single state is shocking even to us!

A spokesperson for the Comptroller says the bill came about as the result of a routine audit by that office of retailers and other such companies operating within the state, an audit that is specifically designed to determine whether companies have a physical presence in the state.  That physical presence issue, which has arisen time and time again in the online sales tax debate, determines whether or not the Comptroller’s office can collect sales taxes from a company.

There’s speculation that the audit arose in large part because of some reporting by the Dallas Morning News back in 2008 questioning why Amazon wasn’t collecting sales taxes even though it was operating a distribution in the Dallas suburb of Irving through an entity called Kydc LLC.   Of course, this wouldn’t be the first anyone’s heard of this.  Amazon has already come under attack for not collecting sales taxes in other states where it operates distribution centers, notably Pennsylvania, Virginia, Nevada and others.

Nevertheless, many tax experts agree that retailing and distribution centers are generally regarded as separate lines of business under U.S. law and that a retailer’s ownership and operation of a separate distribution facility does not, by itself, create the ‘nexus’ (aka physical presence) needed to levy sales taxes against that retailer.

So the question really becomes, is Texas making a power grab like so many states have before it? Or is Amazon in the wrong here?

The retailer has asked for a re-determination of the state’s findings, which makes the audit an ongoing affair.  Beyond that, the company hasn’t said much on the record about the matter except to claim that the assessment by Texas is without merit but that it will defend itself regardless. Amazon did admit  however, that an unfavorable resolution to this issue could “materially affect business.”  With a bill of $269 million potentially due, we’d say that’s a pretty accurate statement.

This thing is far from over.   When we hear more, we’ll let you know.  As always, leave us your thoughts and comments.

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Internet Sales Tax Debate Heats up on Capitol Hill

Posted in Merchant Tips, Online Sales Taxes, Online Shopping, tagged , , , , , , on July 30, 2010 | Leave a Comment »

Things are getting a bit heated on Capitol Hill and no, we’re not referring to the ongoing ethics investigation surrounding New York congressman Charlie Rangel.

Online sales taxes were at the forefront yesterday as members of Congress on both sides of the issue squared off to promote competing pieces of legislation—Rep. Bill Delahunt’s bill to implement a tax, and a new House of Representatives resolution introduced by Rep. Paul Hodes (D-NH) that opposes it.With two legislative sides now firmly established on the issue, it is the start of what could be a big battle that merchants and retailers across the country should be keeping a close eye.

The Hodes resolution already has bipartisan support from four representatives and essentially runs counter to Delahunt’s bill, The Main Street Fairness Act, which was introduced on July 1. As we outlined in our post at the time, Delahunt’s proposed legislation would empower states that abide by the Streamlined Sales and Use Tax Agreement to force online retailers to collect sales taxes from customers within that state whenever they make a purchase online.  Catalog retailers would also be forced to collect tax revenue under the bill.

While the resolution from Rep. Hodes does not reference or mention either Delahunt’s proposed law or the SST Agreement by name, there’s little doubt as to what its aim really is:

“…any federal legislation that would upset [the Internet’s] open and fair environment and impose new onerous and burdensome tax collecting schemes on hundreds of thousands of small online retailers would not only adversely impact thousands of jobs and reduce consumer choice, but would also effectively put an end to the robust e-commerce marketplace that consumers in the U.S. currently enjoy,” the resolution states.

It goes on to say, “Congress should not impose any new burdensome or unfair tax collecting requirementson small online businesses, which would ultimately hurt the economy and consumers in the U.S.”

Already NetChoice, an advocacy coalition of online merchants, consumers and related entities has come out in support of the Hodes resolution, claiming that adhering to any sales tax law for online purchases would likely cost small retailers up to 15 percent of the tax they’re actually collecting, ahefty figure to say the least in these tough economic times.

NetChoice also disputes an estimate given by the governing board of the SST, which claims $18.6 billion in online sales tax revenue could be collected if something like The Main Street Fairness Act was implemented.

We’ve had some great feedback from you on this issue over the past few weeks and we want it to continue.  Obviously we’re seeing battle lines being drawn in Congress over a proposed internet sales tax, and despite the fact that the bills in question are both authored by Democrats, we forsee it becoming a long and potentially messy fight in this election year.  But we want to hear from you…leave us a comment with your thoughts, opinions, etc.

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Amazon Sues in North Carolina to Avert an Ecommerce ‘Witch Hunt’

Posted in Ecommerce, General News / Technology, Online Sales Taxes, Online Shopping, tagged , , , , on April 20, 2010 | 4 Comments »

You might’ve noticed that the online sales tax issue is gaining more national attention lately, as quite a few more states are considering legislation to tax online purchases as a means of closing their own budget deficits.  And once again Amazon, which has offered the stiffest resistance to some of these measures, has just fired another shot in an escalating battle over online sales taxes.

The company has officially filed a lawsuit against North Carolina’s Department of Revenue seeking to prevent the state from acquiring personal information on every resident who has purchased anything from Amazon since 2003, a step that North Carolina is seeking to implement as part of its online sales tax initiative.  Amazon’s defense of its customer’s privacy is opening up a whole new arena in the online sales tax debate, and a potentially intense one with federal repercussions as well.

The 14-page complaint was filed in U.S. District Court for the Western District of Washington. In it, Amazon states very clearly that North Carolina is overstepping its authority to the point of violating the First Amendment:

The North Carolina Department of Revenue (the “DOR”) is demanding that Amazon turn over the name and address of virtually every North Carolina resident who has purchased anything from Amazon since 2003, along with records of what each customer purchased and how much they paid.  If Amazon is forced to comply with this demand, the disclosure will invade the privacy and violate the First Amendment rights of Amazon and its customers on a massive scale.  But the DOR does not need personally identifiable information about Amazon’s customers in order to audit Amazon’s compliance with state tax laws.  All it needs to know is what items Amazon sold to North Carolina customers and what they paid, and Amazon has already provided that information to the DOR.

So what really is at issue here?  Two major things stand out.

For one, North Carolina’s request for this kind of information could set a very dangerous precedent for future legislation regarding online sales tax.  If Amazon was somehow forced to comply, you can bet the farm that every state from here on out would request retailers to do the same as they seek to collect back taxes for online purchases.  Some have argued that this could result in an ecommerce witch hunt of sorts.  Given the aggressive nature many of these states have displayed in pursuing online sales tax bills in the first place, it’s not a stretch to imagine auditors chasing down shopper after shopper for extra pennies from online purchases.

The second issue is customer privacy, specifically with regard to what could be viewed as controversial or unpopular material that was purchased on Amazon.   As stated in the complaint:

Amazon asserts the privacy and First Amendment rights of itself and of its customers so that Amazon may sell – and customers may read, hear or view – a broad range of popular and unpopular expressive materials with the customers’ private content choices protected from unnecessary government scrutiny.  This privacy concern is even greater for public figures who have purchased items from Amazon, because their purchase histories may generate significant political or press interest or otherwise be made public.

Now, even we’ll admit that maybe Amazon is dramatizing this privacy angle just a bit for its own means. However, there is merit to what’s being argued here.

Customers who purchase items that the mainstream deems controversial (think Das Kapital by Marx or Hitler’s Mein Kampf) probably don’t want the entire world knowing about it.  If the company they bought such books from was forced to turn over their purchasing history to the government, odds are those customers aren’t going to come back to buy anything else ever again, choosing to buy in secret instead.

Thus, as Amazon implies, turning over such private information could actually have a negative effect on their business.  While up this point Amazon has simply packed up shop and left states that forced an online sales tax, the implications of complying to North Carolina’s request represent a very tangible threat to their business.  And when you consider that the number of Amazon purchases that fall under the umbrella of North Carolina’s request for information may be upwards of 50 million, it becomes a massive governmental reach into private consumer tendencies.

Who would’ve thought that when we started covering the online sales tax issue last year that we’d now be at the point of debating how such taxes could potentially violate your First Amendment rights?  We’re going to stay on top of this story and see how it shakes out since the implications are so enormous for Amazon and other retailers as well as states contemplating moves similar to North Carolina’s.

In the meantime however, we really want to hear from about what you think about this.  Do you agree with Amazon’s assertion about privacy?  Disagree?   Leave us your comments below.

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The Online Sales Tax Debate

Posted in Online Shopping, tagged , , , on March 19, 2009 | 4 Comments »

The absence of state sales taxes has always been one of the clearest benefits to online shopping and a huge reason for the steady growth of internet purchases year after year. While this system is widely loved by consumers, it is equally loathed by traditional brick and mortar retailers who feel it is unfair to them and a threat to their businesses. Nevertheless, the debate on the issue has largely been a back-page item for most of this decade. Times were good, and there was enough of the pie to go around for everyone.

In today’s shaky economic climate though, government bureaucrats at every level are increasingly “shaking the tree” in an attempt to boost their coffers and narrow budget deficits. Perhaps nowhere is this more apparent than in the state of New York, which over the last year has attempted to tax everything from MP3 downloads to soft drinks. It is the state’s ongoing battle over online sales taxes with Amazon.com and other e-tailers, however, that has garnered national attention and could have lasting effects on e-commerce operations everywhere.

The background:
In 1992, the U.S. Supreme Court ruled that merchants cannot be required to collect sales tax from a customer in another state unless the retailer has a “physical presence” in the customer’s state (defined generally as a store, office or warehouse).

In response, the National Retail Federation and a number of state governments drafted the Streamlined Sales and Use Tax Agreement (SST), designed to facilitate the process of collecting sales taxes. The SST sets uniform standards for the definition of taxes, provides mechanisms to ease the collection of sales taxes across state lines and would offset the burden for any retailer collecting taxes with reimbursements.

Flash forward to last year. New York governor David Patterson signed legislation that would require out-of-state internet merchants who have on-line affiliates in the state to collect sales tax from customers there. Estimated to net an additional $50 million a year in added revenue, similar legislation has been considered in several other states. Amazon then filed a lawsuit against New York on the grounds that an affiliate does not constitute a physical presence in a state and thus the New York law would violate the Supreme Court’s 1992 decision.

It’s difficult to disagree that state governments need to generate more revenue given the economic pitfalls they all face, thus making the likelihood of some online sales tax being implemented soon. It can certainly be argued, however, that the model New York is using is indeed the worst case scenario that many of the plan’s critics have said it is, and one that could have disastrous results if copied by other states.

New York’s plan would not only require all retailers to collect sales tax, but the burden and cost associated with the collection process would fall squarely on those very retailers as well. Whereas the SST clearly dictates that retailers are to be reimbursed for the costs of tax collection, New York’s law adds additional financial and logistical burdens to these retailers, at a time when some of them are barely surviving.

By adding affiliates to the inherent definition of physical presence, the law brazenly expands the reach of the state’s sales tax regulators. Furthermore it makes an already murky sales tax system even more confusing and offers zero protections for businesses affected by it, both in New York and out-of-state. Finally there are many who question if implementing this law will actually result in revenue for the state. If the math doesn’t work out, what’s the point? The SST model is sensitive to retailers’ long-term sustainability while addressing the need for more state sales tax revenue.

No one likes taxes but they are an inevitable reality for all of us. If the days of tax-free internet shopping are truly over, then lawmakers in New York and elsewhere would be wise to implement common-sense changes that do not unfairly burden retailers by bogging them down further at an inopportune economic time. Governor Patterson and his colleagues in Albany got this one wrong. Let’s hope it’s a mistake that isn’t repeated.

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