Friday, July 19, 2013
Proponents of the act say that mandating sales tax collection for remote sellers levels the playing field with brick-and-mortar merchants, which are already bound by that requirement. Critics argue that this legislation, if enacted, would impose a heavy, if not nightmarish, tax collection burden on a growing sector of the economy. Whatever one's opinion, if the legislation passes the U.S. House of Representatives and is signed into law, many businesses will have a new compliance obligation that will need to be addressed.
Ben Goretsky, Chief Executive Officer at e-commerce gateway provider USA ePay, said that if the MFA becomes law, online retailers are going to need "massive amounts of help." That help will likely come from online shopping cart providers, since they will be the firms that will need to integrate the new tax collection policies into the online checkout functionality of their software.
Gorestky said website hosting companies that provide e-commerce services, such as Network Solutions LLC, as well as open-source shopping cart providers, like eBay Inc.-owned Magento, will have a hard time creating their own in-house tax collection solutions because of the complexity of the sales tax landscape in the United States.
"If I'm a merchant and I'm dealing with customers from 50 states, and let's say every state has on average 10 different tax zones, I could be dealing with up to 500 different tax zones," he said.
But that estimate is only a faction of the true size, according to tax collection automation specialist Avalara. The Bainbridge Island, Wash.-based company said that the number of state, local, as well as additional tax obligations within those local jurisdictions, amounts to over 11,000 in the United States.
Matthew Grattan, Senior National Director of E-commerce Sales for Avalara, said that, depending on the "rooftop address" from where any given transaction originates, there could be as many as six different taxing authorities that levy taxes on that transaction.
Avalara offers Avatax, a cloud-based software-as-a-service solution that automates the tax collection process for businesses. Grattan said Avalara maintains and updates a database of tax rate rules and tax boundary information. The service calculates sales tax based on the latitude and longitude coordinates of a consumer's shipping address.
Grattan said a key component of Avatax is that it automates the tax remittance function as well. So Avatax both calculates sales tax at checkout and then files the taxes based on whatever schedule is required by each state.
Grattan noted that Avalara is integrated into 100 platforms, including Magento, and is paid based on the number of transactions or orders processed annually by individual businesses.
According to an Avalara whitepaper, the sales tax collection debate began in 1992 with a U.S. Supreme Court decision that remote sellers did not have to collect sales tax because it posed an "undue burden on interstate commerce." That opinion has been challenged ever since by brick-and-mortar retailers.
In Ecommerce and sales tax legislation: Understanding ecommerce & sales tax (www.avalara.com/resources/whitepapers/ecommerce-and-sales-tax-legislation ), Avalara said tax collection advocates gained momentum in late 2011 and early 2012 when online giant Amazon.com, long an opponent of such legislation, shifted its position and began to collect sales tax for certain states, including California.
Momentum for the tax collection mandate was also spurred by the budgetary woes faced by states following the economic collapse of 2008 and the subsequent "Great Recession." Avalara cited a 2012 CBPP survey that said states experienced a combined revenue shortfall of $191 billion in 2010. "The loss of sales tax revenue associated with online retail has become increasingly important in the face of declining state revenues, and in light of the fiscal crisis of the past few years," Avalara said.
States lost $11.4 billion in sales tax revenue they could have collected from e-commerce businesses in 2012, according to University of Tennessee research. Avalara also quoted an estimate from the Streamlined Sales Tax Governing Board, which requires states simplify tax collection policies before they can begin the collection process, that states can collect $23 billion annually when catalog, phone and other interstate transactions are included.
Goretsky recognizes that brick-and-mortar retailers are not happy that e-commerce businesses can charge lower prices for the same items because they don't have to collect sales tax. But he believes the MFA is a bad idea. "Honestly, if it was up to me, I would leave things alone," he said. "We don't have the easiest tax system out there right now. And to throw this into the mix? It's going to open up a can of worms."
Like the debit card price capping imposition of the Durbin Amendment to the Dodd-Frank Act of 2010, the MFA would represent another poorly designed intrusion into the industry, Goretsky added. "We're almost at a point where we've reached our brink," he said. "This might drive businesses over the edge."
Goretsky does not believe many e-commerce merchants have heard of the MFA and its implications. "It is one of the biggest problems in our society is that we don't care as to what our government is doing," he said. "We only care after the fact. We only care when it's too late."
He noted that the impact of the Durbin Amendment was lessened only when powerful forces in the industry got involved at the last minute. He hopes that the same scenario does not play out with the MFA. Goretsky thus recommends ISOs and merchant level salespeople educate themselves about the issue and then turn around and inform merchants of it. 
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