Congress is looking for a sensible solution to the dilemma over how to collect Internet Sales Tax in a fair and reasonable way.  But the fatally flawed Remote Transactions Parity Act (RTPA) introduced in June by Rep. Jason Chaffetz, a Utah Republican, is exactly the wrong way to do it.

Steve DelBianco

Steve DelBianco Steve DelBianco

This legislation would impose large costs on America’s small businesses, is amazingly complex to administer, and creates uncertainty and fear of intrusive government audits from 46 different state tax departments across the nation.  Congress should find a better way – one that doesn’t favor big box retailers at the expense of small businesses in any corner of the country. Here’s why:

First, the costs are significant.  It is estimated that  the “free” software needed to manage the complex web of 10,000 tax jurisdictions would cost between $80,000 to $290,000 in initial setup and integration fees for each retailer, with another $48,000 to $160,000 in annual upkeep. That’s a huge burden for mom-and-pop stores and other small and medium sized businesses.

Second, RTPA would be a nightmare to administer.  The legislation does nothing to untangle the thicket of competing definitions about what is taxable and what is not.  It doesn’t solve the problem of what a remote seller should do when a customer submits either too much or too little sales tax.  And most importantly, it does nothing to eliminate the very real risk of audit from 46 states.  The legislation doesn’t simplify the rules over Internet sales tax; in fact, it makes them far more complex.

And third, the legislation, as introduced, eliminates a provision in earlier versions that would have provided federal preemption over state law.  At the very least, this would have given businesses some comfort that only Congress can make laws governing taxes on interstate commerce.  Furthermore, the legislation also abandons a second measure that would have given federal courts jurisdiction when the inevitable legal issues arise.  Taken together, that will mean an avalanche of litigation in state courts that are friendly to state tax departments.

Clearly, the RTPA is deeply flawed.  The good news is that there is a much better approach. House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican, is developing a proposal that would ensure that tax is collected based on the seller’s location, rather than where the customer is based.  This is a much more sensible approach, one which dramatically simplifies how to comply with the law, creates a uniform standard, and eliminates the daunting risks of facing 46 state tax auditors.

As Congress considers how to address this important issue, I hope that it will keep in mind the real challenges that RTPA would impose on businesses trying to do their best to comply with the law.  Chaffetz’s bill would be a terrible mistake that would lead to huge costs, endless litigation, and intrusive audits. By contrast, Mr. Goodlatte’s approach is far simpler and easier, and should be adopted.

Steve DelBianco is executive director of NetChoice, a trade association of e-commerce businesses and online consumers.

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10 responses to “Chaffetz Internet Sales Tax Bill Is Too Costly and Complex”

  1. I strongly support and urge Congress to pass the Remote Transactions Parity Act. My small business continues to enjoy the many benefits made possible by simplified sales tax automation processing. For over three years my small business has been voluntarily automating sales tax in 32 states. I can’t wait until all states simplify their tax policies in the same way. Perhaps the naysayers should try using the very technologies they are currently profiting from, instead of say “it’s too hard” (Boo Hoo)”

    http://www.forbes.com/sites/kellyphillipserb/2012/08/27/guest-post-why-i-support-the-marketplace-fairness-act/

  2. Hi Sten, First of all, let me say thank you for raising this issue. You, like so many other small online retailers, have a misunderstanding of what’s really in RTPA. You say you are voluntarily complying with tax collection for the 32 states that have a common classifications (Streamlined Sales and Use Tax Agreement or SSUTA) of items and that’s terrific. I applaud you. Now let me tell you what would happen under RTPA – there don’t have to be any common definitions. And, what is now voluntary on your part and therefore not subject to audit by all those other states, will suddenly be auditable but every state at any time. More than that RTPA lets them haul you into court in their jurisdiction at any time! (You have no right to a federal court or at least working within your own jurisdiction). And, those 32 states that you deal with right now, become 10,000 different taxing jurisdictions – again with no standardization. That SSUTA that you are using to run your business now gets thrown of the window.
    Those of us who are saying it is complicated are doing so because for us to make this work, like you, we want ONE COMMON set of rules of what is taxable and what is not, and we want to be subject to one audit only (by our own state), and be able to seek redress in the federal courts. We also need clear definitions of nexus.
    Here are some other issues which may be unique to companies mid-market catalog companies like mine: we don’t just have one piece of software, some sort of shopping cart. We run customized integrated legacy systems – and any tax calculations have to be worked into front end web systems, back end order processing systems, warehouse management systems, return processing systems. For the typical company like ours, you are talking full year IT projects and a cost of a quarter-million-dollars or more and still there is liability on us if we do something wrong. Then there is the work of classifying all of our products properly. Most of us sell proprietary items of our creation, not in any database. We sell sets which are treated differently in every state and no software can handle. And, here’s the kicker…
    CHECKS and MAIL IN orders. YES, I’m serious. With all the discussion of “remote” meaning “internet”, it is easy to forget that a great many people in this country, especially senior citizens still fill out order forms, calculate their own totals and mail in checks. There is no APP that can make that work. Under MFA or RTPA, the abbreviated tax chart we would need to send with our catalogs is bigger than our catalogs themselves and so immediately intimidating, it will likely prevent these people from buying at all. RTPA disenfranchises our nation’s senior citizens. It puts a great many companies and jobs at risk. And, it would threaten my company, which sells unique handcrafted products, and all the small business owners who supply us.
    I hope you will look a bit further into what’s really under the hood of RTPA. I don’t think you will like what you see. Here are a few links for you:
    • Attorney George Isaacson will explain why the title of this act is very misleading and how SSUTA will be bypassed. http://bit.ly/1TTIVmp
    • Lou Geisler of Amerimark on the unintended consequences for our nation’s senior citizens. http://bit.ly/1IfuNQs
    There’s no “BOO HOO” here. This is real. Companies like mine ARE willing to become tax collectors for the states in the nation. But we need a simple system that doesn’t threaten our existence. One rate per state, one set of rule, one audit. There’s one alternative floating through Congress right now – the Online Sales Simplification Act by Congressman Goodlatte. His proposal suggest that the home state rules apply. While I don’t find this to be ideal (I’d still rather the states have to agree on standards), it has the advantage of being doable.

    • You’re right. I see him pop up here and there, using the name Sten, as well as aliases. Sad really. Astroturf always loses to real people, real grassroots, real business owners who don’t wilt under pressure when their livelihoods are at stake.

      Only big retail can afford the integration demands of this bill. “$80,000 to $290,000 in initial setup and integration fees for each retailer, with another $48,000 to $160,000 in annual upkeep.” Oh, and Sten Wilson, or whoever he decides to be today.

  3. You’re right.

    How do localities impose behavior controls if they allow their citizens to shop elsewhere? How can they control your lives and make you submit to their flavor of the month restraints if they don’t know your address and the contents of packages being sent to you?

    This bill is about the control of people and choice, and negating the consequence of bad governing.

    -It’s about big states/cities bullying small states/cities. (Taking their tax revenues away from them b/c they have larger purchasing power.)

    –It’s about big corporations taking business away from smaller competitors, even at the risk of giving an advantage to foreign business.

    —And it’s about crushing mom & pop brick/mortars b/c any of those businesses who sell online will have it (if not now, in the near future) change the way they do their inventory, apply for business licenses/permits in each state, install complicated software that is expensive to manage, and open themselves up to 46+ audits per year!

    Who could possibly think this is a good idea?

    Big states, big business, foreign marketeers.

    *Note: 83% of sales online already collect tax b/c they are made through Walmart/Amazon/Home Depot/Best Buy/etc.

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