Implementing the Online Sales Tax Bill

The possibility of Congress passing legislation which needs online retailers to collect sales taxes has been discussed for ages. People today use to asked me if I had been worried about it. I’d answer,”Not until legislation is in the last debate in Congress.”

Well, that closing debate is here. In a bi-partisan vote, the U.S. Senate approved the bill now. The House takes up discussion shortly. President Obama has indicated he supports the legislation.

This guide won’t address the wisdom of this invoice. Instead, I’ll handle the operational aspects of implementing it, including the uncertainty of a lot of its requirements.

Wallpaper on Sales Taxes

In 1992, the Supreme Court ruled, in the Quill office-supply catalogue case, that anticipating merchants to follow thousands of different sales tax districts where clients reside — cities, states, municipalities — is unrealistic (together with the technologies at the time) and, as such, merchants can not be responsible for the collection and payment of these taxes. The exceptions made by the Court were for nations where merchants had a physical existence — i.e.”nexus.”

Fast forward to the growth of ecommerce, the pressure it places on local brick-and-mortar shops, and the corresponding decrease of sales tax revenue to states and municipalities. The result is a mishmash of state legislation, interpretations of nexus, and a slew of court cases.

The Marketplace Fairness Act of 2013 is meant to solve that confusion. However, the language itself is fuzzy and, to me, leaves many unanswered questions. It tries to create a uniform mechanism for states and municipalities to collect the tax, and for internet merchants to compute and pay it. It applies to all retailers that exceed the small seller exclusion — i.e., yearly U.S. earnings of over $1,000,000. The bill is short and readable.

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Overview of Marketplace Fairness Act of 2013

  • SST states. Any nation belonging to Streamlined Sales Tax Governing Board — SST — can declare the collection of sales and use taxes starting 90 days after the enactment of this bill. Currently, 22 states are members. For more on SST, visit”Streamlined Sales-Tax Director on Efforts to Simplify,” our previous interview.
  • Non-SST says that fulfill alternative criteria and supply free software for retailers to use may also combine. Likely, states will just combine the SST if the legislation passes.
  • Small seller exemption. Retailers with less than $1,000,000 in U.S. earnings in the previous calendar year are exempt from the current bill.
  • Free software. States must offer free calculation and collection software to retailers.
  • No fresh tax. This bill doesn’t allow for the imposition of any new taxes — so called”Internet taxation” — beyond what the states and municipalities currently impose.
  • All retailers. The bill applies to all retailers: Online, physical stores, or multi-channel.
  • Senate, not House. The bill was approved by the Senate, not the House of Representatives, where it probably will face tougher opposition.

What Does This Mean to You?

At a first glance, compliance with the invoice may appear straightforward. Add some free software to your cart, collect and pay the tax using an automatic system, and it is done. However, it’s more complicated than that.

Ecommerce merchants will have to deal with the following.

  • Integrate the accredited collection program Only software certified by SST qualifies.
  • Create processes to make payments and always monitor compliance at all levels. This includes product yields, and synchronizing the sales tax refunds and with all essential systems.
  • Manage cash flow to make sure payments will be forced to taxation agencies in a timely manner.
  • Evaluate the competitive effect of higher pricing.
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Licensed Providers

There are currently six firms which were certified by the SST. They are:

  • AccurateTax;
  • Avalara;
  • CCH;
  • Exactor;
  • FedTax;
  • Taxware.

All these companies have negotiated with the SST to be given a part of the sales tax collections, thus letting them provide the software for no cost. However, your shopping cart will have to integrate with these firms. According to my preliminary research, they now supply built-in integration using a relatively small fraction of carts.

Accounting Setup

Even if your cart integrates with the tax software, you might want to monitor sales tax collections by state. You will probably have to create new accounts on your financial system, such as QuickBooks or Sage, for each state to facilitate this, and tie those into transactions from the shopping cart. You’ll also probably need to record your accountability to each condition as you collect the unpaid taxes. You will want to make sure to really set aside those funds for future payment. This will affect your cash flow projections and direction. And you will want to be certain returns can easily be processed to update the tax obligations by state.

The biggest impact could be price competition. Currently, you might have an $8 to $10 price advantage in certain countries over an in-state retailer, on a $100 purchase. Will that impact your company? It may put your company at a price disadvantage to the local retailer who has the item in stock. It might induce more”free shipping” to cancel the sales tax effect.

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Start investigating your organization’s technology and procedures affected by the sales-tax bill. If it goes into effect this year, it might hit in the middle of the holiday period, which isn’t the ideal time for system or process modifications.

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