Internet Sales Tax

The Marketplace is Already Unfair for Online Sellers

by Mark Faggiano

marketplace fairness online sellersThe Marketplace Fairness Act (MFA). It’s back in the news lately. You’ve heard of it so I’m not going to spend much time interpreting the bill. That’s been done by a million other sources. I will say that there’s not enough focus on the right issue.

The reality

States need more revenue. I get it. I live in California. But the hard truth is that even though states want more money they make it almost impossible for online sellers to pay it. Sounds crazy, right? But it’s true. States make it extremely difficult to comply (more on that later), leaving business owners beyond frustrated, wasting hours and hours every month filing and paying sales tax to states. I talk to online sellers all the time. Not one of them says they have sales tax all figured out. And this is without the MFA, which will force more online sellers to further wade into the morass.

Compliance complexity is the real issue

I’ve called the Arizona Department of Revenue myself more than once to get a ruling for TaxJar customers about nexus.  Each time I called, I got a different response. What’s worse, my customers all get different responses. How are business owners supposed to comply if the states won’t help them? While we’re talking about Arizona, it requires seller registration at both the state and local level. Sellers have to pay $50 per year for a seller license with the city of Phoenix. And, they have to file a separate sales tax return to just that city. Are you confused? Now you know what it’s like being an online seller. (note: AZ may be headed in the right direction).

Don’t go anywhere, I have more examples. Ask the state of Virginia to rule on a nexus issue in writing so you can have it in case they audit you. They’ll charge you $500 to hear your case. Or check out what the Tennessee Department of Revenue puts at the bottom of their correspondence to sellers:

Any opinion from tax law or regulations given herein is believed to be a correct interpretation. However, the opinions cannot constitute a revenue or letter ruling pursuant to the provisions of Tenn. Code Ann. Sect. 67-1-109.

If the states can’t give you the simple answers you need to be able to run your business legally, who will?

Is software the savior?

A lot of folks in favor of the bill say that software will serve as a magic wand and solve everything. As someone who works with web-based software, shopping carts, and the state and federal government,  my view is that software may very well help online sellers figure out how much sales tax to collect from their customers. The issue I have is that assumes a business has the capacity to implement whatever software the states provide online sellers for their existing ecommerce systems. In my experience, most online sellers will not have this capacity. It will not be simple.

The answer?

It sure feels like simplifying sales tax laws is a good place to start. If we could do away with all of the hassles of trying to figure out rates and nexus, compliance will go through the roof. I can’t tell you how many sellers I talk to who’ve decided they will take the risk and do nothing about sales tax compliance because it’s just too hard. Simplification will give the states what they want – added revenue. Everyone will be happy.

Last point

As a guy trying to grow his business I should be begging for the MFA to pass. It will no doubt add a whole new layer of complexity to an already chaotic landscape. And you know what? TaxJar will probably make a ton of money because of it. That’s not what my team is all about. We know that this sucks. We hate hearing the stories that our customers tell us all the time. TaxJar will do fine, thank you, even if somehow the complexity of sales tax improves. There’s plenty of opportunity for us to help the online seller just trying to do the right thing.

Thoughts? Share them with me in the discussion section below.

TaxJar vs. Avalara

  • Kane Train

    A refreshing breath of fresh air. Thank you for your honesty.

  • Brian Lavoy

    Thanks for an unbiased commentary about MFA. Would’ve been easy for you to cheer-lead it’s passage, but shows integrity that you’re actually about serving customers and helping them overcome problems, not trying to create more problems for them and then profiting at their expense.

  • Thomas Carlson

    I would definatley sign up with your company if the MFA passes. Avalara and Tax Cloud have left a nasty smell all over the Internet with their posts in articles and aggressive advertising. There are many of us online that do not like their tactics.

    • FedTax

      A “nasty smell”? Our service is completely free! How does that create a “nasty smell”? Our belief is that the opposite reaction would come from having access to a free service.

      • Rick

        The smell is the long pattern of misleading and minimizing the actual impact on businesses. Taxcloud heavily promotes the MFA with these statements that will result in a windfall for the company. So there’s not a lot of credibility in cheerleader posts for the MFA from a company who will get rich to it.

        And as expressed privately, the problem I and others have is that Taxcloud is the worst offender of the CSPs in this area.

        It’s not completely free to integrate anything, there are always internal costs. You have glaring gaps in your support and have been pimping your service for years when you had even less cart and platform support, while making it sound like all issues are solved. They still aren’t, you know it and continue to push it. In our specific example in the blog post, you don’t support any meaningful aspect of our platforms. Not our cart, not our order processing software, not our Amazon orders. That’s the smell Thomas is referring to.

        http://marketplacefairnesscoalition.org/taxcloud-2010-statements-vs-capabilities/

      • Rick

        And I have taken Avalara to task for what I feel is a mixed message. Compliance is easy, when pushing for MFA to pass. And it’s hard when selling their service to retailers.

      • I recommend this article for those who want to learn about FedTax and their deceptive practices.

        http://emainstreet.org/tax-cloud-and-the-marketplace-fairness-act/

        FedTax and their CEO, David Campbell have a long pattern of misleading and minimizing the actual impact on businesses. “Nasty smell” is probably too kind.

  • Keith Yockey

    Since it’s inception in 2001, The Board of Governors of SSUTA have met over 23 times, expanding the original document of a few pages to now over 300. Each new addition is to woo more member States. Gone are the days of One State, One Rate, as well as audit liabilities other than for software errors.

    Now that the definition of a “state” has been expanded in S743 to include the Several States (50), DC, all US Territories, and all (565) Sovereign Indian Nations, look for SSUTA’s BoG to expand the rules.

  • FedTax

    Does TaxJar actually determine the combined sales tax rates due? It looks like your service just pulls down historic transaction data from one or more sources and displays this data in an aggregated form on one web page.

    Am I missing something?

    • Thanks for stopping by.

      TaxJar makes filing as easy as possible by providing sellers with the information they need to file and pay sales tax returns.

  • Pratik

    Hi,
    Thanks for all the insights that you have provided. My question is that if I have sales tax nexus in one state, will that mean that I have to pay salex tax only if I sell to customers of that state?

  • Hi Pratik,

    Yes, exactly. You collect the sales tax from customers in any states where you have sales tax nexus. Here’s more about determining where you have nexus: http://taxjar.wpengine.com/sales-tax-nexus-definition/

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