To describe the status of Internet sales taxation, and the U.S. Congressional attempts at a nationwide solution, we recently spoke with Jonathan Barsade. He is a sales tax expert, and the founder and CEO of Exactor, a sales-tax management platform.
Practical Ecommerce: what’s the status of Internet sales taxes as it applies to ecommerce merchants in the U.S.?
Jonathan Barsade: There is a lot of confusion in the Region of Internet sales. There is a perception out there that there are no taxes online. That is incorrect. So one thing to be really clear on is that sales tax do apply to the web. There’s not any law that states that the world wide web is a tax-free zone.
The question is not so much of whether or not taxation apply, but instead enforcement. Can the countries enforce their rules?
PEC: Together with the mishmash of state legislation and court cases, what is an ecommerce merchant supposed to do today, to comply?
Barsade: That is an interesting question since there are many merchants — even though they may not have to collect taxes when they are selling in from country situations — they still do it because they want to be on top of things. They’re anticipating that there’ll be a rule and they see no reason to not collect the taxes. What merchants can do now, if they do need to comply, would be to use among the various platforms [such as Exactor and others] that may aid them in their compliance efforts. They aren’t costly. They can compute the taxes and create and file their returns.
PEC: Moving to attempts by the U.S. Congress to pass a bill to create earnings tax uniform nationwide. Last year those attempts failed. The bill was known as the Marketplace Fairness Act. It did not pass. It passed the Senate. It did not pass the House. What is the status of the MFA this year, of becoming law?
Barsade: during the past few years that the Congress has tried to answer the circumstance. This past year the Marketplace Fairness Act passed the Senate with an extremely large bipartisan majority. In the House there was a bipartisan support, also, but the bill stalled in the judiciary committee.
Basically what the MFA does is to embrace the principals of the Streamline Sales Tax project, which is an agreement between states to collect sales tax. The purpose of Streamline is to simplify and standardize the rules for interstate sales tax.
The MFA comprises a state-funded mechanism for encouraging companies in their sales tax attempts, [to use] accredited service providers [such as Exactor and others]. The merchants do not cover these providers. This mechanism has been employed for more than eight years now with very substantial levels of success and is embraced not only by large company but even for little mom-and-pop businesses.
The MFA was resubmitted in the Senate two weeks ago. It has been supported by members of both parties. There are currently two proposed bills in the House. One is extremely similar to the MFA. The other has been filed by the opponents of the MFA. Where the two bills differ is more on how they decide where the transaction occurs. Can you use the location of the purchaser or that of the vendor?
The alternative bill doesn’t include the state-funded lending system. The prevailing opinion is that a bill will pass this year. It is unclear which of those two bills it’ll be. But there’s a common idea is that something will happen in 2015.
The president said last year he affirms the MFA.
PEC: If MFA moves in 2015 in the shape it passed the Senate this past year, a merchant would employ one of those certified providers, including your company. Just how many of these suppliers are there?
Barsade: There are six suppliers today. Streamline will be likely be adding additional suppliers as the bill moves.
PEC: Therefore, if the bill passes in that form, the merchant can select the provider. The supplier’s platform would integrate with a merchant’s shopping cart to automatically calculate and pay the tax. However, the state or the local taxing district would cover the provider’s fee for this work, rather than the merchant. Is that it?
Barsade: That’s correct.
But allow me to add only one caveat. Merchants aren’t required to employ a provider. They can do it on their own if they desired.
PEC: How many taxing districts are there in the U.S.?
Barsade: Around 10,000.
Barsade: Amazon is a staunch supporter of the MFA. Twelve years ago, the CEO of Amazon was quoted as saying that Amazon will not pay sales tax. Then fast forward to mid-2007 and 2008, once the financial meltdown occurred. States began looking new sources of revenue. Internet sales taxes was a prime target since it had been an unexplored area.
In 2007 or 2008, New York passed what eventually became known as the Amazon Law. What New York stated was that if a company does not have any existence in the nation, should they let citizens of New York to advertise on their site, that that will make nexus, [so the corporation has to collect and remit sales taxes]. It was clearly targeted to Amazon, which at the time objected. Amazon went to court. They appealed. They got all the way to the Supreme Court and they dropped. A number of other countries followed suit and passed quite similar laws.
So Amazon has turned this apparently obstacle to a market opportunity. In the last few decades, it’s approached states that passed similar laws and actually offered to construct a local distribution center, hiring tens of thousands of local employees. Amazon agreed to begin paying sales tax and what they got in return was a deferral on the sales taxes which were due. Amazon is currently using these local distribution facilities as the foundation for their same day delivery initiative.
And so what we are seeing is that Amazon took the sales tax barrier, turned it into a marketplace advantage. Today they have become very strong supporters of the MFA.
PEC: Tell us a little bit about Exactor, your company, which is among the six accredited service providers in Streamline.
Barsade: We have been in production for more than eight decades. We have been certified under Streamline in the first round. We supply end-to-end solutions for sales and use tax compliance. We can join at any point where a vendor should calculate taxes. It can be either in the shopping cart, in the accounting program, the ERP system. Our service computes the taxes smoothly and automatically without slowing down the transaction or without needing to carry out any additional functionality. It is all done for you automatically and will insert the taxes right to the shopping cart or the bill or the purchase order, wherever it is.
PEC: Can Exactor incorporate with every cart?
Barsade: We incorporate with many carts, particularly the most common ones. We also incorporate with many accounting programs like QuickBooks, the Sage family, as well as the various Microsoft products. For more personalized environments, we’ve got the capacity to integrate there also. Our prices start at about $30 per month but it is going to go up depending on the degree of transactions and the amount of returns that will need to be filed.
PEC: Anything else?
Barsade: Taxes are a part of our lives and taxation of online transactions is inevitable. Ecommerce now is an integral part of commercial activity. So there is no reason that the exact rules should not apply. The evidence from the past eight years has demonstrated that merchants will do just fine with this adaptation. Many online companies already collect taxes and they manage to become workable. We think ecommerce companies should handle their taxation so that tax management and tax compliance are incidental. It will not take away from their principal focus of managing and building up their organization.
Online and physical retail ought to be treated as equals. It is time that we stop pampering the Web like some sort of toddler. The world wide web is a mature business environment. We should begin giving it the respect that it is due from this aspect.