While I rarely agree with Sen. Ted Cruz, he is correct on this topic. The Marketplace Fairness Act (S743) is bad for business.
The bill proposed will allow States to reach across State Lines and force all businesses with remote sales ($1M or more) to collect Sales tax that the purchaser would owe in his State.
The compliance costs to small business will be more than the tax collected.
A recent TRUST
shows there is a startup cost between $80K and $290K. These costs include software integration and costs of potential audits. Yearly maintance costs would be well over $50K.
Proponents of the legislation deny this, stating 'free' software is available. Yea, I can get a 'free' puppy too, but they need to be fed, and poop a lot too! They fail to consider that software needs to be installed ( a cost), inventory needs to coded with a taxability status ( a cost), 45 or more monthly tax returns must be filed, even if the amount due is $0 (another cost), not to mention the audit risks and demand letters coming from various State agencies (yes, another cost). There are over 300 different shopping carts on the internet, and the CSPs (Certified Service Providers) accommodate less then 40. No two software solutions share the same taxability database, so if a seller wishes to switch, he has to start over. We have no idea if CAs 'free' software will talk nice to NJs 'free' software, so there is another integration problem. There are no 'free' software solutions for mail-order catalog sellers.
Proponents also claim software solutions will auto file your tax forms. That might work for sellers that only sell from a single platform, but does not apply for those that sell multi-platform i.e. eBay/Amazon/website. Amazon will collect 3p sales tax now ( at a cost of 2.9%) but will not file taxes on the seller's behalf.
Proponents claim $23B in uncollected revenue, quoting NCSL (National Council of State Legislators) The number is totally false. The numbers come from a study by the Univ. of Tennessee in 2008 (revised 2012). It assumes no taxes have ever been collected. Broken down, $14B is for online sales, and the rest made up by B2B sales, auto sales, and private sales where goods cross State lines.
83% of online sales are dominated by the BigBox.coms now (Walmart.com, Target.com, BestBuy.com and Amazon.com (collects tax in 24 States), so the number drops from $14B to less than $2.5B
Most B2B sales involve items for resale, and therefore are tax exempt. Most auto sales have Sales Tax collected at time of registration, but U of TN never bothered to check that factoid, and it's doubtful 'private' sales ever cross the $1M threshold.
As we can see, the revenues States project to collect, does not exist or has already been collected.
Webrooming vs. Showrooming
Mom & Pop Main St. stores are demanding efairness, claiming they are selling at an unfair advantage, given that online sellers do not collect Sales Tax, which can be between 3-10% of the purchase price. The fact is polls have shown that only 2% of the buying public make their final purchase decision based on Sales Tax alone. That $400 item at the Brick & Mortar store can be had for $350 online. Even with Sales Tax, online is still the winner on price. While shoppers do walk into a store and compare prices with their smartphone (showrooming) the store owner has no idea if the final buy is made online with added shipping costs, or the sale made at a competitors store across the street (webrooming). Fact is, webrooming (shoppers who research first on the internet for a product) drives $1.2T in brick & mortar sales.
MFA is bad law, plain and simple. Rep, Goodlett is correct to analyze his version of the bill for a more simplified solution.
There are many solutions, and need for revision to current proposals.
My proposal is to have the merchant accounts (the credit card processors) collect the tax and remit directly to the States (States pay related fees), along with a unified taxability database, based on product UPC codes. The advantages are many:
~States receive instant funds
~ It's paperless, and cheapest of all software solutions.
~ no privacy issues
~ No exemptions required
~ Minimal law change needed to enact.
Merchant accounts charge 2-5% on every tax dollar collected. Those funds do not belong to me or the Merchant account, but rather the State DOR! For a WalMart that does $10M business a quarter, at 6% Sales Tax, would save over $12K in collection fees.