No, states should not be allowed to require tax collection by out-of-state retailers. The Marketplace Fairness Act (MFA) or the new and dramatically worse Remote Transactions Parity Act (RTPA) are not acceptable solutions to collecting use taxes owed to the states on remote purchases. States already have the ability to collect use tax from their citizens and choose not to.
Why not? It’s not particularly popular. The states have made very little effort to educate and enforce their existing use tax laws on the books. This approach should be the first step before even considering passing unprecedented big-box- retail-funded national legislation that lets states reach across their borders to enforce their laws on business with no presence or representation in their state.
States enforcing their own use taxes would also solve the issue of an increasing number of foreign sellers selling direct into the United States that would be untouched by the MFA or RTPA. Anyone reading CFO most certainly will be affected by the RTPA: any company with more than $1 million in revenues or any person or company with any sales through a “marketplace” at all (such as Amazon or Ebay) would be subject to RTPA if the bill becomes law.
Compliance would be very difficult, if even possible, and expensive. Calculating sales tax in a shopping cart by an online provider is certainly possible. But it’s only the tip of the iceberg, one touchpoint in the sales tax collection, reporting, and remittance of sales tax. In the case of my company, our order processing software is actually the most important linchpin, and none of the current Certified Solutions Providers support our setup.
Our processing software is where orders are imported to, partial shipments of orders made, credit cards charged, returns processed, customer service pricing adjustments made, and phone orders entered that are outside of any shopping cart. Catalog orders would be even more problematic with the mixture of 10,000 sales tax jurisdictions and a complicated mixture of product taxability classification issues and assorted sales tax holidays as well.
As a small business owner, audits are one of my largest concerns. We’ve been through the process before in our home state, and it’s a time consuming and stressful process even if no issues are found. The MFA would increase my risks of being audited from one to 46 states and, assuming a 2% audit rate, I’d be facing annual audits. That’s not why I started my business, nor is my small business equipped to handle this new and scary burden.
If I had to choose an approach that didn’t involve the states collecting their own taxes and keeping the existing physical presence standard, it would be similar to House Judiciary Chairman Bob Goodlatte’s proposed fairness principles and a simpler origin sourcing. The MFA and the new RTPA defiantly ignored the principles Chairman Goodlatte released last fall. These principles simplified the process, reduced state overreach and addressed many of my concerns as a small business owner. That said, I believe physical presence is still key and the best rule for allowing states to require tax collection by retailers.
Rick Smith is the president of Chef’s Resource in Laguna Hill, Calif.