Senate Backs Bill to Force Tax Collection on Internet Sales

https://www.nytimes.com/2013/05/07/business/senate-backs-wider-internet-tax-collection.html

by sciurus • 13 years ago

74 77 13 years ago

nytimes.com

r00fus• 13 years ago

Does this matter if the Republican-controlled house (generally anti-tax) will not pass it?

It sounds like the Ryan budget that was passed in the House back in '10 and was never going to pass the Senate.

Either it's inefficient politics, grandstanding, kabuki theater or all of the above. It's definitely not newsworthy.

dangrossman10• 13 years ago

There's a not-insignificant chance this will pass. Republican opinion on it is split -- they can get away with saying they're not reneging on no-tax-increase pledges because it's merely enforcement of tax laws already on the books (consumers are supposed to pay use tax on their out-of-state purchases). There's strong pressure on them from brick-and-mortar businesses in every state since it makes them more competitive with online retailers.

mullingitover4• 13 years ago

So the republicans are in favor of closing tax loopholes now? Oh right, this is for consumers.

I thought I woke up in an alternate universe where congress wasn't bought and paid for.

Turing_Machine5• 13 years ago

There's also a not-insignificant chance that the Supreme Court will throw it out if it does pass. These issues aren't new; most of them were hashed out back in the heyday of the Sears Catalog and other mail-order operations. As far as I know, no state ever managed to collect taxes from out-of-state companies.

nostromo2• 13 years ago

I wish this was paired with a provision that required states to simplify their sales tax codes.

I know in Seattle for example food is tax free, unless it's carbonated (which has a surtax), or prepared, or alcoholic, or coffee, or until recently a 'snack' which of course has a lengthy definition on page 3,641 section 4 subpart D...

Even if you make a million dollars in sales, it's hard to imagine keeping up with these regulations.

I'd be especially worried if I was a sharing based company (will Airbnb pay hotel rate taxes, RelayRide car rental rates? Who pays, the owner or the company?)

dangrossman10• 13 years ago

This is paired with a provision that states must simplify their sales tax codes before they can collect from out-of-state sellers, though it's not hard to see how they could stay within the requirements of the bill and still have overly complicated rules.

I wrote a summary a few weeks ago:

http://www.dangrossman.info/2013/04/24/what-startups-need-to...

vaadu• 13 years ago

It's not that simple. http://online.wsj.com/article/SB1000142412788732362800457845...

wtvanhest• 13 years ago

Its really just a software problem. The vast majority of products made in the US which you describe all have unique identification numbers called UPCs, Universal Product Codes. With the exception of in house made items like custom baked goods almost every product has a universal code. That code can easily be linked to a database which identifies its characteristics by state and county etc.

Once you have the characteristics by state/county/etc. (how the product is described legally), you can then cross reference it to where it is sold to and calculate a tax.

Is it a lot of data? Absolutely, but it is doable and the person/team who does it is sure to have a fairly large business charging companies who want their products sold online and companies using their system.

[ADDED] There will likely be multiple providers which should drive the price down and economic profits to zero. There is no reason why you would pick 1 tax calculator over another except price.

Most foods won't be an issue since they aren't sold as much online.

If you are a retailer of a new item with low volume, that is really where this is a problem. Once you make over a million a year in sales, you will likely have to hire an expensive consultant to figure out your tax implications.

[Additionally Added] I agree that it will be a challenging transition. But, in 10 years, this will be a non-issue.

nostromo2• 13 years ago

Amazon will be fine, yes.

I'm more worried about the small retailer that sells $1m in goods and pockets $150k, who now needs to buy expensive tax calculation software and pay taxes in 50 states.

milesskorpen• 13 years ago

I work with UPCs a lot. We're regularly disappointed with how FEW things have UPCs. There are whole categories — foods, apparel, etc. — without UPCs, and other segments - old books, beer, wine - where UPCs aren't actually used for unique products, but instead for things like brands or prices.

Add to this that state and local laws change frequently, and that they aren't machine-readable (and, even if the rules were easily accessible, the rules frequently would require a lawyer to parse, and might change based on where the goods are sold). It is a very thorny problem.

potater• 13 years ago

To that end it's also a data problem. Getting 100% accurate unique identifiers like UPC, MPN or ISBN for such items can be a challenge for online retailers. Also the notion of smaller retailers who fall under this legislation having to (pay someone to) modify their systems to support these third party services to calculate the collect tax is also kind of a bummer.

These issues are mostly resolvable with time and money. Regardless, the transition is going to be rough, in my view.

angersock• 13 years ago

See, this might be remotely tolerable if there was also a funded mandate to create federally-run queryable API free of charge for all online businesses to make use of. Alas, I doubt this will happen.

(And the first person to chime in with "hurr durr a chance to disrupt the state tax industry" can go fuck right off.)

EDIT: Reading Dan's summary above, it looks like states (not the feds) will be responsible for providing this API. Urk.

betterunix3• 13 years ago

Why release an API? Just release the tax code itself as software. That is basically what it is, right? Instead of English, publish the tax code in Prolog or some similar declarative language (added bonus: contradictory tax codes will be caught early and automatically).

McGlockenshire• 13 years ago

> And the first person to chime in with "hurr durr a chance to disrupt the state tax industry" can go fuck right off.

Especially as it's already been done by Avalara and a bunch of others.

joe-mccann• 13 years ago

I shorted Amazon in the after market on the news.

ghaff• 13 years ago

You do know Amazon is backing this?

jerf• 13 years ago

Is that because you think it's bad for them?

Have you considered the implications of the fact that Amazon is pushing for this?

Byzantine regulations favor the incumbents. Even sometimes ironically the complicated regulations designed to favor the little guy, who is unable to hire enough lawyer power to take advantage of them while the incumbents work out how to use the new loopholes.

illuminate2• 13 years ago

Aren't you clever!

noonespecial• 13 years ago

My problem with this as it stands: $0.42 in tax to remit, $42.50 to figure out where to send it.

w1ntermute• 13 years ago

I'm really looking forward to same-day delivery from Amazon.

cpursley2• 13 years ago

My issue is not the complexity and methods of collection (although that is problematic); it's what it will be wasted on once collected.

guelo2• 13 years ago

Wasted on cops, and fire and teachers and roads.

cpursley2• 13 years ago

You'd be surprised how little is spent on cops, fire and teachers.

Hawkee• 13 years ago

The online affiliate industry should be happy about this. For the past few years states have been instituting laws stating online affiliates earning commissions on sales constitute a physical nexus. This first passed in New York and Amazon began collecting tax from New York residents. Many other states followed, but rather than collect the tax like they did in NY they started killing off their affiliates in each of these states. I know of one particular case where Fat Wallet moved out of state to avoid being severed by a majority of their affiliate partners. States have been trying everything they can to force online merchants to collect tax, but they've been failing miserably. Amazon even said they would start collecting tax if the federal government steps in. It looks like we've finally reached that point. There's a lot more history to this issue than it appears.

burke5• 13 years ago

I wrote Shopify's current US Sales Tax calculation system. Here are a few interesting tidbits:

* There are over 23,000 distinct tax rates in the US. Most of these can be nicely pigeonholed as 'State', 'County', or 'Municipal'. Some can not.

* There are a handful of cities with multiple municipal tax rates. Most of these straddle counties. A small handful of them, perplexingly, don't.

* Most states charge tax based on the three(ish!) rates applicable at the sale's destination. Several charge based on the origin.

* Some states charge tax on shipping. Some states charge tax on shipping and handling. Some both, some neither.

* Three states only charge county and municipal level taxes if the destination is located in a county that the business has a phyiscal presence in. Of these three, one does something subtly different still.

* Figure the 5-digit zip code is sufficient to identify the applicable rates at a given address? Nope. You actually need to geolocate the street address to get it right sometimes.

* There are a nearly-unfathomable depth and breadth of exceptions on a type-of-goods basis (selling clothing in New York? It's exempt if it's under $110, but only from State tax, and additionally county tax if the destination is in one of 14 specific counties, unless it's in the cities of Norwich or Oneida, in which case the County tax applies again.)

This astounds me as a Software Developer and a Canadian (we have vastly simpler Sales Taxes). How they expect Joe Merchant to be able to charge all these taxes correctly without radical simplification (and unification) of tax codes is beyond me. Very far beyond me.

--EDIT--

After reading the full bill, it's not as bad as I previously thought (logistically, ignoring the more-taxes discussion). However, it is still pretty bad.

Salient points:

* One central authority per state means at most ~50 points of contact. This is better than 23,000, but not exactly good.

* Doesn't apply to merchants doing less than $1M/yr in business.

* States are required to provide a database of rates and boundaries. As worded in the bill, it's unclear whether this means zipcodes or bounding coordinates. Geolocation is not a cheap service at scale.

* Each state is required to provide software to calculate rates for a given sale. Given government, this will likely be a desktop Windows app that does not integrate cleanly with any server-side infrastructure, nevermind the fact that there will be 50 likely-distinct pieces of software.

On the other hand, with states actually being encouraged to publish their rates in a freely-available machine-friendly format for once, perhaps we'll see some startups pop up around this problem to ease the pain.

dangrossman10• 13 years ago

They don't expect that at all. This bill requires tax code simplification before a state may tax out-of-state sellers. There will only be one taxing entity per state, with one database of tax rates and boundaries, and one nationwide rule for determining the locality of the tax.

It's still going to be complicated (up to 50 returns, 50 possible audits, and in the worst case 50 subtly different definitions of what's taxable), but nothing like what you're describing.

burke5• 13 years ago

Interesting. I haven't actually read the bill yet. I assumed it wouldn't make it this far.

I guess if it actually results in tax code simplification, that's a decent silver lining.

CamperBob2• 13 years ago

How they expect Joe Merchant to be able to charge all these taxes correctly without radical simplification (and unification) of tax codes is beyond me. Very far beyond me.

Amazon's just fine with it. That in itself should tell you which side the legislators' bread is buttered on.

MicahWedemeyer• 13 years ago

That first sentence really took me by surprise...

Our US State Sales Tax system was written by a Shopify employee?!?!

burke5• 13 years ago

Hah. Not quite. Fixed the unclear wording ;)

columbo• 13 years ago

Entire businesses have been formed from the nuances of government state/local regulations.

I kid you not, http://www.sos.state.tx.us/ucc/forms/UCC1.pdf on that form section 1g and 2g there's an option to check NONE if you do not have an organization id. Well, depending on the state you file (this may have changed) you would either write none, check the box, do both, or do neither. Good times.

What I'm trying to say is, if you need to go into that much detail it sounds like you have an excellent business opportunity to sell your logic SaaS.

duck2• 13 years ago

How do you currently keep all this up to date?

burke5• 13 years ago

We pay an external service provider for the raw zipcode-to-rate mappings. Their company exists solely to manually aggregate all these rates in a mostly-machine-friendly format. We developed all the peripheral logic through skimming documents and talking to customers, and it changes very rarely.

It's not hard to google for the rate provider services, but they don't give you all the information you need to handle all the inane edge cases properly (at least, not the ones I've investigated)

betterunix3• 13 years ago

What astounds me about taxes in the USA is that we continue to print tax tables and booklets, and that the government has yet to create any useful software for filing taxes. Most of the tax filing process could be completely automated if rather than publishing booklets, the government just released software for computing taxes.

Of course, we are talking about the same government that used flat files to manage the entire country's tax data until recently.

dangrossman10• 13 years ago

It wants to, but there's a vocal lobby against it -- Intuit, H&R Block, and 1.7 million accountants that would like to continue being paid to fill out the forms.

DanielBMarkham• 13 years ago

Add to this:

* 1M/yr in business with slim margins means this can apply to folks not even making enough to get by. Given the long tail of e-commerce, this will have significant impact on many small internet vendors

* The software provider catch-all means big wins for companies like Amazon to sell add-on tax calculations. Translate: more big walled gardens, less mom-and-pop businesses

* I'm still not sure who categorizes goods and services to determine taxation. The same good or service can be taxed differently by any one of those 23,000 taxing authorities (per your example of shipping and handling), but how is categorization information supposed to make it to the software provider (or merchant)?

* This complexity means that it's not a matter of merchants optionally using a software provider to compute taxes. For all intents and purposes, this legislation will require the use of a software provider to compute taxes

* Not only will the extra paperwork hurt small businesses, the added few percentage points will hurt poor consumers -- the people who can least afford it.

ChiperSoft• 13 years ago

Ever since the first time I had to do sales tax for an online store I've been wanting to create an online service to help sites calculate sales tax.

After reading your comment I've changed my mind.

VLM• 13 years ago

"Given government, this will likely be a desktop Windows app"

Ah you misspelled COBOL on a AS/400.

I've occasionally wondered if an aggregator is legally possible. Simply remit an annually agreed upon 5% across the board along with full shipping records in electronic format and we'll take care of the rest. Some localities will charge 10% some 0% but you just remit 5% and we pay out roughly 4.95% and keep the last 0.05% which probably adds up to quite a bit.

The third point I would like to make is how this will be enforced overseas. I've bought stuff from dx, seeed studios, and overseas ebay stores, and if the shippers can get the price down in bulk the tax savings would be valuable. In the long run, the only real effect could end up being amazon's kindle store moves to Jamaica (or whatever) and shipping takes a little longer from warehouses in Canada.

I am old enough to remember when congress intentionally and methodically and thoroughly destroyed the american shipbuilding industry by social engineering the tax code. I have no idea why they wanted to do this other than the usual .gov goals of destruction of the middle class etc. I could totally see a repeat happening this decade with e-commerce.

jacoblyles• 13 years ago

Here's the vote on today's bill: (http://www.senate.gov/legislative/LIS/roll_call_lists/roll_c...)

Boxer: yea

Feinstein: yea

Silicon Valley sucks at politics, even our own senators are selling us out.

jvm4• 13 years ago

a) Silicon Valley doesn't have "its own senators"

b) Why should internet retailers get special privileges? Complexity sucks but that's life, and the law does require states to simplify the collection process.

barry-cotter• 13 years ago

a) Hollywood does, why doesn't Silicon Valley?

dangrossman10• 13 years ago

b) This actually creates a burden on internet retailers that brick-and-mortar stores don't have; it makes things unfair rather than fair. A single retail store has to worry about only the taxes of the locale it resides in. At most, they are filing 3 sales tax returns and could potentially have their books audited by 3 entities. An internet retailer now has to comply with 50 separate sales tax rules, file 50 separate returns, and potentially be audited 50 times a year.

For an individual making $30k/year (3% net on $1m in gross), is that really levelling the playing field? How many of your aunts and uncles do you think have the time and the skill to locate, understand and properly comply with 50 states' separate tax codes? Contrast that to opening a brick-and-mortar shop on main street in their town, where if they need help, they can walk up to the town hall and ask the tax administrator in person, or hire a local accountant who already knows all the local rules. That's feasible, where getting assistance from 50 accountants to start a business is not.

fixxer• 13 years ago

I think the long term (5 years out) result of this tax is going to be faster distribution from Amazon (local warehouses, delivery infrastructure). I hate taxes, but this makes the short bet on Best Buy more interesting to me.

EGreg• 13 years ago

How will this affect purchase of digital goods?

dangrossman10• 13 years ago

Some states tax them, some don't, and that will continue to be. If this passes, once each state sets its new sales/use tax code, you'll have to check each one to see if what you're selling is taxable there.

gte910h• 13 years ago

Who the hell cares if there are taxes collected.

But it's OBSCENE to exact the costs required to comply with every little tiny jurisdiction. Make a streamlined approach where tax is based on 1-10 plans laid out in federal statues, and able to be looked up via a city/state/zipcode lookup table

dangrossman10• 13 years ago

This is being flagged off the front page. Why does that happen to every mention of this bill?

_delirium• 13 years ago

I flag it because at this point, afaict all the productive HN discussion that's going to happen has happened. Check the previous submissions with comments and compare the comments to the ones here: A lot of words seem to be being re-spilled saying the same things on all sides, which indicates a stalled (or perhaps, cyclical) conversation.

Just the news itself I can get from elsewhere; the usefulness of something being on HN is if it produces good discussion, which repeated submissions of the same topic tend not to do, unless interesting new information comes to light between the submissions.

That said, it's still on the front page 8 hours after submission, so obviously most HN readers don't agree with me.

cmircea• 13 years ago

2 cents from an European here:

Why does the US not have VAT and instead have this big mess called sales tax? IIRC it's one of the only few developed countries without VAT.

TheCoelacanth• 13 years ago

Because any given locality has at least three different governments that all have the power to implement taxes. There's not a chance that all of the ~10000 different governments in the US would agree to a single tax.

Senate Backs Bill to Force Tax Collection on Internet Sales

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