Governor support of Main Street Fairness legislation

On 6/10/12, The Hill reported - "GOP governors bolster online sales tax push," by Becker and Bogardus. This article notes that some Republican governors are supporting enactment of one of the Main Street Fairness bills. These governors include New Jersey Governor Christie and Iowa Governor Branstad and perhaps 10 more. The story reports that opponents to the governors' stand are some who say they should not be focused on increasing tax revenues but cutting spending.

I continue to be surprised and dismayed that people call collecting sales tax from sellers a tax increase.  So far as government revenues, in theory, they are the same whether the customer self-assesses and pays the use tax or the vendor collects and remits the sales tax. Of course, the government is more likely to get funds if the vendors handle collection rather than rely on millions of consumers to self-assess.

The vendors need a simple state sales tax system with simple reporting AND they should get some reimbursement from the states for collecting and remitting the tax. The three versions of the main Street legislation need to be reviewed to be sure they have these reforms. Discussion is also needed on the definition of a small vendor who should be exempt.  The current bills, provide definitions of under $100,000, under $1 million and under $500,000. That's a significant variation.

For more on the bills, see my Affiliate Nexus website. The House Judiciary Committee is expected to have another hearing on the topic in July.

What do you think?

21st Century Retail Pushing for Sales Tax Reform from Congress

"21st Century Retail" appears to be a new website and blog (I like the title!) to encourage Congress to enact legislation to allow states to collect sales tax from non-small remote retailers.

A 2/27/12 post - "Main Street Stores Should Not Become Online Retailers’ Showrooms" observes that people often visit flooring showrooms so they can touch and see the materials, but then order the items online from other vendors to avoid sales tax. Chris Davis, the poster, observes: "Federal action is necessary to make sales fair no matter where they occur. We want Internet retailers to collect sales tax at the point of sale just like community-based stores are obligated to do.  That’s why the World Floor Covering Association has joined with other organizations and companies in supporting the Marketplace Fairness Act and the Marketplace Equity Act.  The bills are in no-way “anti-Internet”, but instead seek to address fundamental unfairness in the marketplace."

I agree. At a November 30, 2011 House Judiciary hearing on the topic, a small business owner noted that sometimes customers asked for a 6% discount to account for the sale tax. The owner reminded the customers that he doesn't keep the sales tax, but that it goes to the government. Customers did not care. I assume that many of these customers are also people who like to send their children to good public schools, get police and fire protection and get potholes filled in their streets. Where do they think the revenue comes from? And governments have been somewhat remiss in all of this too if they have raised sales tax rates (or in California, local sales tax rates get raised only by voters) rather than pushing for Congress to pass a remote sales tax bill (there are currently three versions of legislation on this topic). (Most states also need to broaden their sales tax base to include digital goods and services purchased by consumers, but that is another topic.)

I think Congress may indeed pass legislation - perhaps in the lame duck session, as a cheap way for the feds to help states (retailers say there is $24 billion in uncollected sales tax annually).

For more, including the links to the three versions of remote sales tax collection bills before Congress, click here.

What do you think?

More on proposals to reverse Quill

Amazingly, there are three bills in Congress to allow certain states to collect sales tax from remote (non-present) vendors. The last bill introduced S. 1832 has the support of Amazon and the chair of the California Board of Equalization (among others). Unlike the typical bill we have seen in recent years, it allows states that have adopted the Streamlined Sales & Use Tax Agreement (SSUTA) as well as those who have not but have made specific simplifications in their systems to be allowed to make remote vendors (above a de minimis level) collect sales tax.

There are a variety of issues and considerations here. I was recently interviewed by BNA about this topic. You can find the Q&A here - California's Delay in Online Collection Law Sets Stage for Federal Solution, With or Without Streamlined System.

For links to the federal proposals and background on the nexus and affiliate nexus issue - click here.

Interesting tax development(s) of 2011

I spend a lot of time throughout the year reading, writing about and presenting on federal, multistate and California updates. This week I'm presenting webinars on California tax developments and a quarterly federal update (see http://www.21stcenturytaxation.com for details on that if you're interested). In presenting on or writing on annual updates, I try to find themes from everything that has occurred and even see if there are a few developments of particular significance - that might change tax practice or a tax system in a significant way. I'll share with you what I think and encourage you to post a comment on whether you agree and what you think was most significant taxwise for 2011.

First, themes that emerge from federal and state tax developments of 2011 (in my opinion):

1. Due diligence reminders - several cases and IRS actions remind practitioners of the need to be sure clients have proper documentation such as for charitable contributions and the need for reasonable and timely documentation of hours to prove that a person is a "real estate professional" if they are claiming benefits of being one.
2. Tax planning remains challenging due to items expiring at the end of 2011 and the likelihood nothing will be renewed until sometime in 2012 (including the AMT patch). And the 2001/2003/2010 tax cuts expire at the end of 2012.
3. Continued focus on the tax gap - but Congress repealed some of these measures this year (the extra 1099 reporting added by 2010 health care legislation and the 3% government contractor withholding). And 1099-K reporting started in 2011 (Section 6050W) on credit/debit card and Paypal reporting. I expect that this provision will do little towards the tax gap but will make it difficult for Congress to enact better tax gap measures that will really get at the tax gap because they have to carve out from any new 1099 reporting requirement, payments made by credit/debit card or Paypal to avoid duplicate reporting.
4. State and multistate tax actions - there has been continued movement to economic nexus for income tax by more states, legislative activities to broaden sales tax nexus with questionable constitutionality; some efforts to provide guidance on taxation of coupon deals (such as Groupon) and cloud computing. State legislatures focused on accountability for special credits and deductions - more so than in the past.
5. Federal tax reform - over 25 hearings on the subject were held by the Senate Finance Committee and House Ways and Means Committee. I'm sure they learned a lot, but a lot of it were obvious things about complexity and burdens on small businesses. It is time now to take all of this testimony, identify goals for reform, and start writing legislative language.
   

Next, the most significant developments, I think:

• The continued rollout by the IRS of the regulation of paid return preparers including the exam that 1040 preparers who are not active CPAs, attorneys or Enrolled Agents must pass to continue to be eligible to prepare 1040s. I have been including this topic even in my updates to CPA groups because I think they are going to soon have clients asking them if they are a "Registered Tax Return Preparer" so they need to know what that even means.
• I think we are going to see a major reduction in the number of special tax credits, deductions and exclusions ("tax expenditures") to help pay for a lower corporate tax rate and to pay for keeping some rate cuts for individuals and to help pay down or multi-trillion dollar deficit and debt.
  
• 2011 actions may lead Congress to finally enact legislation to effectively overturn the 1992 Quill decision to allow states with the right kind of simplification measures in their sales tax to collect sales tax from remote vendors. I think the bill that will be taken up is S. 1832 - the Marketplace Fairness Act which is supported by Amazon and California BOE chair Horton. States are in need of revenue and the feds can't offer much assistance due to its one revenue problems. So, passing S. 1832 will be one way to help get money to states because compliance by vendors will be much higher than the very low compliance by consumers self-assessing use tax.

What do you think?

More on affiliate nexus - Amazon-style + possible federal action

If you are looking for background on the affiliate nexus ("Amazon" type) legislation that has been enacted in varying forms in eight states to date, as well as legal issues and compliance considerations, see my article in the CA Bar Tax Network newsletter for November 2011:
From Website Links to Collection Points

Also, don't miss the National Retail Federation's ad - "Why you should care about online sales tax legislation." The ad encourages retailers not involved in online sales to support federal legislation to enable states to require remote vendors to collect sales tax. The NRF notes that states would gain about $24 billion. Here is a line I like: "It’s NRF’s view that businesses need a 21st century tax system that works with 21st century retail. And now is the time for Congress to act."

NRF notes that there are 3 federal proposals but does not take a stand on any particular version. Instead, NRF notes: "NRF strongly supports federal legislation that would make it easier for states to require all Internet retailers to collect sales tax in the same way as local stores."

I think something is going to pass - probably S. 1832 (112th Congress) because it helps states that adopted the SSUTA as well as states that have not and probably will not. If non-SSUTA states enact the simplifications specified in S. 1832, they would be able to get remote vendors (but not de minimus ones) collect sales tax. With states eager for funds and Congress unable to give them much given federal budget problems, passing S. 1832 would be a way to indirectly get money to states.

What do you think?

Need to Fix Sales Tax Collection Problem

A headline in today's Chicago Sun Times is a good reminder of the need to address the issue of sales and use tax not getting collected on a lot of online shopping done by consumers. The story title - "Tax-free shopping doomed?" by Kyong M. Song (11/13/11).

There has never been tax-free shopping on the Internet. It has only seemed tax-free because most consumers do not know about the use tax or don't pay it. And, states have had difficulties enforcing it (and done little to really educate consumers about the use tax).

There are currently three bills in Congress calling for some way to get more remote vendors to collect the tax, which would be the easiest way for the states to collect it and for consumers (no need to track what use tax you owe if the vendor collected it from you).

For a quick summary of the three proposals, see "Federal Proposals" - here.

I am doubtful if anything will be passed this year unless Congress feels that it a necessary option to help states gain some revenues.

What do you think?