Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Wed Aug 16 2017 20:43:30

Lawmakers Seek Taxes from Small Online Sellers

By: Ina Steiner

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States are seeking various ways to get online retailers to collect use tax that their residents should be reporting and paying. One state is going after Amazon to collect its sales tax on behalf of its merchants.

South Carolina filed a complaint against Amazon in June for allegedly failing to collect taxes on sales made by its third-party merchants, according to CNBC. "Amazon maintains that the seller is responsible for determining if sales tax is required and for collecting and remitting it. South Carolina is fighting that premise, arguing that under state law, Amazon is considered the seller because the company controls a large part of the sales process for its third-party merchants."

Some of the issues involved - how would Amazon determine for which sellers it should collect the state's tax, and does that open them up to liability?

How would a multi-channel seller file and remit taxes for all transactions when some are being remitted on their behalf by the venues on which they sell? (And how do they keep track of it all?)

If South Carolina succeeds, no doubt other states would want in on the action, further complicating matters for all concerned.

Meanwhile, Senator John Thune wants to greatly expand the existing requirement that payment processors report transactions on Form 1099-K. Currently payment processors such as Amazon, PayPal, Google, and credit card processors are required to submit the 1099-K forms to the IRS for sellers with more than $20,000 in annual sales and more than 200 transactions in a year.

According to Bloomberg, the Senator wants to lower that threshold from $20,000 to $1,000. Along with that comes the necessity of collecting social security numbers - how many people selling a low-dollar value online have a Tax ID number? Requiring the most casual of sellers to hand over their social security numbers to ecommerce companies doesn't sound like the most cyber-secure practice. It sounds like a lot of trouble for $1,000 earned over the course of a year.




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Perminate Link for Lawmakers Seek Taxes from Small Online Sellers   Lawmakers Seek Taxes from Small Online Sellers

by: Chicago48 This user has validated their user name.

Thu Aug 17 00:16:51 2017

these states & cities claim to be hurting for money, so they're looking for money every which way they can.  In Cook County, IL they just started a 1c an ounce tax on sugar drinks.  Of course this is killing the grocery stores.
I don't know how one state can command sellers who make less  $1000+ to pay taxes.  It's the buyer who should be paying the taxes on their sales, not the seller.   In Illinois on our tax form we are supposed to voluntarily pay taxes on the online sales.  A lot of small sellers (less than $20,000) are supplementing their SS income or it could be their sole income.
I question what is driving or who is behind John Thune to go after the little guy?

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by: Snapped This user has validated their user name.

Thu Aug 17 00:50:18 2017

Opponents of eSales Tax claim an overburdening of record keeping would ensue.  However, if I cross a state line and make a purchase at any store, I pay that state's sales tax rate.  So a registration/license would only need to direct eCommerce to remit all sales rates regardless of buyer residence.  

Arguments from those states decrying revenue loss need only lower rates to retain that revenue, which you don't get anyway when your resident wallet crosses the river to shop a better deal.  You know, be competitive.  Meanwhile, the pesky, often the overlooked, occasionally creatively reported 'sales and use tax' (SUT) is made moot.  One less thing, right?

And here's a bonus.  Those ubiquitious 'venues' that BEHAVE in all legal, and a handful of questionably legal manners so to 'be considered' as a retailer?  SUT THEIR virtually corporate butts based on 'fees' collected (their revenue) and the state THEY are registered/licensed.  I would suggest GMV, but states would already have taken thier chunk of the REAL GMV anyway.   And if yer still lookin' for mischief, maybe you can conjure a way to tax the inflated part of GMV eBay (et. al.) reports.

Wait, too much windfall for one state?  Ok, chop it up to pay off every state the 'business' has physical registration.  You fight it out.  Only keep it upstairs ok?  We can't afford it down in steerage.  

But what about the 'no tax = business attraction advantage' apparently currently inherent in eCommerce?  Fist off, it isn't really.  Those 'advantaged' 49 other state buyers still are liable for THEIR state's SUT.  Creative reporting notwithstanding.  But even if relying on perception, then one must count on loosing one's home state market, right?  Yet that doesn't happen. And wouldn't to any other business. Why not?  

Because the tax bite is institutionalized.  So is eCommerce. States already have mechanism in place to flip this switch on their behalf and make it work like it already does work.  

Or not, on their better behalf, depending on what their 'we the people' want, and whether their 'lawmakers' listen.  



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by: Docinmd This user has validated their user name.

Thu Aug 17 00:52:37 2017

States have seen a drastic drop in sales tax remittance due to the economic melt down starting in 2008, and now that online shopping has taken hold, the state sales tax revenue continues to drop.

So the people like me who make only a few sales a year will be required to spend considerable time & expense collecting sales tax for South Carolina?  I don't think so. Let's see what happens when most of the auctions on ebay say "No sales to South Carolina". [And any other state that requires us to collect sales tax.] Can anyone imagine if us little guys have to deal with 50 different state tax rates and requirements? When I sold at antique shows in 3 states, each state had different rates, different remittance schedules, one required me to call in sales numbers every month, even though I only did one show a year in their state. I still had to file 11 times a year for $0 sales. Another state said if my sales were under $XXX, I filed quarterly, if above that amount, it was monthly.
If the states are successful in their quest, It will be companies like Amazon & ebay who end up collecting the tax for the individual states, and it will be Amazon & ebay who end up deducting and keeping the percentage of the tax paid, not the seller. I don't have a problem with that, if they handle it all and give me a monthly sales tax report. Problem is, I can pretty much guarantee feebay will not only collect the deduction offered by the states, but also figure out how to charge the sellers a percentage of sales revenue for handling the sales tax issues.  

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This user has validated their user name. by: eXtinctBay

Thu Aug 17 02:05:27 2017

There are many small sellers who are under the impression that if they do not sell $20K in a year and don't receive a 1099-K that they are exempt from paying income tax.

This will ensure the IRS has the correct income tax paid by most everyone who sells online. It is not fair that some small businesses must pay tax, and some do not (of course, if they are never caught underreporting their income).

As far as the individual states go, I believe there should be sales tax collected. Snapped notes that if you cross a border and buy something at a store that you are still responsible to pay the taxes in that state. So why should one be able to buy something online and not be charged a tax?

And I agree with Docinmd- eBay and Amazon will attempt to keep some of the tax revenue, and perhaps charge a bookkeeping fee as well. Why? Because they can. Even though the money they make on the monthly interest (before the tax is remitted to each state) would likely cover the bookkeeping and distribution costs.

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This user has validated their user name. by: Marie

Thu Aug 17 02:39:10 2017

ExtinctBay is exactly right.  Just because the threshold for a 1099k is $20k & 200 transactions does NOT in ANY way mean that if you fall short of that amount you are not responsible for reporting your income.  NOTHING could be further from the truth.  

If you are selling on the internet and are doing more than just cleaning out your own closets, you have a responsibility to claim the income you are making to the IRS.  If you get caught not reporting your income to the IRS with or without the 1099k, you will have tax implications that you won't like one bit.

The rule use to be for anyone that is a subcontractor or contract labor is that you had to report income if you earned $600+ in GROSS [not net] income in a calendar year.  It would be easy for them to apply such a rule to online sellers.

For those that choose to not report the money they collect from customers and are collecting any kind of government money [SS, SSI, etc] you are risking a lot.

As for the sales tax.  I've read things like they are trying to hold the site responsible [Ebay, Amazon, etc] to collect and disperse the appropriate sales tax and then they in turn can withhold the money from the seller.  This would still be very complicated to any company to pull off effectively, so they fight this stuff as they should.  They have the power and money to fight this.  It will be extremely interesting on how this specific dispute turns out.

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by: Paul W This user has validated their user name.

Thu Aug 17 04:53:28 2017

If all 50 states would agree to an ''Internet Sales Tax'' of, say, 5%, and every seller collected that tax and remitted to the State in which they are located, then EVERY State would benefit.
It makes sense to remit to one's own State since that is where all the business activity takes place.  I don't go to New York or South Carolina; when a buyer visits my site, he is visiting a business in Washington, where the inventory is, where the payment is ultimately deposited, where the packing and shipping takes place, where the roads to the Post Office are located, where all the records of the business are located.  
I suppose such a solution is too simple to actually be created.  It would fail to create enough work for the lawyers, accountants, bankers and tax people.  And for sure the big money folks will find a way to object to it.

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This user has validated their user name. by: Rexford

Thu Aug 17 06:55:04 2017

I pay my taxes every year on my internet sales, and I have an accountant whom I work with. I don't mind paying my fair share.

What I do know though is that if more and more states ask for revenue from online sales, it is going to be a  big hot mess. Sites like Amazon and eBay are going to have to step in and assist in some way because tax rates are different all over the country.  Moreover, there are different tax rates for different cities and counties in different states.  No small seller will be able to figure all of this out.  Is a seller or their accountant going to be responsible for sending hundreds of checks to various state governments' tax divisions or the cities and counties within those states?

Amazon is one of the sites that I sell on and I have for years.  Interestingly, in all of those years, I don't think that I have ever shipped an Amazon product to South Carolina. I have on eBay.

I am not a government basher, as I know we need government, but what I do know is that no amount of money is ever enough. They want more and more and government does very little to cut costs or control waste.  Lots of pork barrel projects.  Corporate welfare is out control.  Perhaps if South Carolina would stop giving sweet tax deals to the large corporations they court to come into the state to do business they would not be hurting for tax revenues.

As we all know, the middle class always carries the burden.

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by: DingDong This user has validated their user name.

Thu Aug 17 07:47:50 2017

I agree with Paul W.,, but I look at a lower rate of 2-3%.
Most of the items I sell are used and regular rate of sales tax has been collected at least twice. I feel that a lower rate on these items would be fine and the state would get something.

I think of the times of cars being sold, resold and resold and that high amount of taxes that they collect from selling cars 3 to 6 times. I just hate buying vehicles.

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by: topdog This user has validated their user name.

Thu Aug 17 07:50:18 2017

I have no problem with paying the sales tax, if done properly.
What ISN'T proper is having to deal with 50 state filings, tens of thousands of rates, and different rules for different places. Think about it - within 3 miles of my house, there are SIX different tax rates. SIX! And that's just here locally! Not to mention, how can anyone keep track of what is and isn't taxable? One example is the ubiquitous Clif Bar, which we sell. In some places, it's classified as food (non-taxable), in others a nutritional product (taxable), and that's just one of many. NUTS!
If they want to make sellers do their work and file taxes in states where they have no presence (nevermind the constitutional issues there), then at least be reasonable about it. Create ONE tax rate for internet sales, and ONE tax entity. Everyone pays that tax to them. They'd be subject to just ONE audit. Let the states figure out how to divvy up those funds. Alternately, as Paul suggested, pay it to your home state, and that's that.
I know it's just a matter of time before this happens, but at least have some sense about it. The only ones who can deal with the requirements of bills like the MFA are the majors, such as Amazon and Walmart - who incidently are the ones pushing for it. They know that their army of accountants and attorneys can handle the requirements, but Joe from Saginaw, who sells out of his house, sure as hell cannot.  

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by: pace306 This user has validated their user name.

Thu Aug 17 08:19:10 2017

Sorry, Im in the minority here.

You cant complain that you arent getting you "due" in taxes from small micro sellers, then turn around and spend MILLIONS on illegal aliens.

These states (CA, IL, NY) the ones that bitch the most about what they are due, spend the most educating, feeding, taking care of people who shouldnt even be here.

Before you turn every sellers world upside down for a few dollars, stop wasting money on things you SHOULDNT be spending money on.

I pay my taxes to my state. Im an LLC and I collect sales tax and report 1x per yr as required. Im not doing that another 49x, especially to places who "cry wolf" when there is none.

IL is virtually bankrupt, CA isnt far behind and PA, NJ etc all have their DEEP problems.

Let the states clean THEIR closets out first before bothering me for yet another hand out - greedy SOBs.

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This user has validated their user name. by: VV

Thu Aug 17 08:58:09 2017

No.

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by: retailer This user has validated their user name.

Thu Aug 17 09:02:38 2017

There are two sides to every story. In the case of the remote online sales tax issue supporters have proven there is little if any burden for online merchants to collect and remit sales tax. In many cases it appears that larger E-commerce giants are using the issue to actually harm their competition. Larger retailers absent the evaded sales tax price advantage already maintain a pricing advantage over the smaller retailer. Add in the bulk buying, technological, and shipping advantages, and the small guy barely turns a profit.

What is unknown is there are millions of online merchants competing on Internet. Millions of merchants that when combines trump the larger E-commerce retailers in size. Millions of sellers that deserve a tax structure that provides them a benefit. Tax policy is never intended to favor one group of retailers over another. Why we still choose enable tax policy that provides a pricing advantage over smaller competitors and brick and mortar retailers is clearly unjust.

Here is an article from 2013 showing that one retailer is realizing the benefits of remote sales tax collection. Benefits that thousands of retailers now utilize and benefit from, but are rarely reported.

https://www.forbes.com/sites/kellyphillipserb/2012/08/27/guest
-post-why-i-support-the-marketplace-fairness-act/#50750e8f4d3b

The
power of misinformation is a luxury small retailers can not afford. It's time small retailers band together and support the laws of our land instead of enabling tax evasion. Tax evasion that continues to do more harm to local communities, and further limit marketplace opportunities for average business owners. it's time for Congress to level the playing field once and for all.

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by: epuise This user has validated their user name.

Thu Aug 17 10:14:36 2017

Since I began selling as a show vendor, I've had a Sales Tax ID. When online selling started, I continued to collect in State I sell in, the buyers that buy from me there. I am barely surviving on this 'sole' income.The book-keeping for Sales and Income Tax is burdensome. I can't afford $500-$1000. for an accountant. I do it myself. I don't need a 1099, I report all my sales. I've never gotten a 1099. I just add up the sales, subtract costs, and declare. There is no way I have time to collect for multiple states. The book-keeping would eat up any time in the day for sourcing, researching, cleaning, repairing, taking photos, creating listings, packing & shipping. The net result would be less sales than now for me. IF the want more tax, let THEM collect it. CHARGE each buyer directly when they pay. Let PayPal or eBay KEEP & FORWARD the money. FREE ME from this task. I am sick of buyers complaining that -I- "charge" tax when others DON'T. I don't want to go to jail or pay fines for YOU. I follow the law. I pay MORE than my "fair share". Let the wealthy entities figure it out. "Little people" are working longer & harder enough.

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by: epuise This user has validated their user name.

Thu Aug 17 10:26:21 2017

Just like with HEALTHCARE, you have rich elected officials who know NOTHING about being a "one man band" business making RULES for those who will be SUBJECT to them... I used to work in the Insurance Industry, what the GOP proposes will destroy Health Insurance in the USA... that shows how LITTLE they know... and, never having sat up to 2am to pack orders, these greedy, lazy, overpaid idiots/criminals have NO IDEA how their 'bright tax idea' will put small from home sellers OUT of business...

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by: mcposty This user has validated their user name.

Thu Aug 17 10:38:52 2017

I agree with South carolina..Amazon runs every aspect of the sale for you..you are just anot order filler.

If amazon doesn't want to do this..they will need to let third party vendors run their own businesses how they see fit.

Good for South Carolina calling amazon out on this! Amaxon CANNOT claim they are just a venue for sellers all the while micromanaging everyone's businesses.

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by: Noneya This user has validated their user name.

Thu Aug 17 10:45:38 2017

I sell online, it's my only source of income. I collect and pay state sales tax on sales made in my home state. Surely Amazon can make sure that sales tax is collected for in state sellers to in state buyers, if the sellers are not in turn paying those taxes, that's for the state to handle with the seller. Going after Amazon is just easier for the state. I'm frankly tired of people selling online without understanding that paying taxes is part of their business.  

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This user has validated their user name. by: toolguy

Thu Aug 17 10:56:30 2017

If they enact a law requiring sellers to collect sales taxes a lot of online businesses will be relocating to: Oregon, Montana, New Hampshire, Alaska & Delaware where they have NO state sales taxes!

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by: dander This user has validated their user name.

Thu Aug 17 11:27:55 2017

This is the resident of the state to be responsible on paying the tax. The courts and Congress have made this clear. If the states insist on this, then there will be another cost of doing business on small business people. I can't see the states agreeing on the same tax on internet sales. They will be greedy and want more than 5%. They will want their "fair share" which is as much as they can get. Can't wait to pay for a software company to take care of this mess.

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by: leathermermaid8 This user has validated their user name.

Thu Aug 17 11:32:33 2017

Consider also that even in states where internet sales get tax collected, in SOME states, not every item is taxable.  Clothing isn't taxed in every state.  Mattresses are not but sheets are.  They are asking a LOT, without considering how it's to be performed.

I live in a state where property taxes a high and I'm all out of sympathy for now.

A small seller trying to keep up will be updating his/her software constantly to keep up or restricting sales.  How does this help anybody?  

We all pay taxes, one way or another anyway.  Like hotel taxes in the Carolinas when on vacation......

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by: val2525 This user has validated their user name.

Thu Aug 17 12:27:56 2017

Get off your anti-liberal red wagon, @pace306. The states you mention are NOT the ones driving the demand for sales tax collection from online merchants.

As a small seller, I have no problem collecting and remitting the sales taxes for states. Most checkouts and money processors are set up to make the collection fairly easy. What I AM opposed to is having to deal with the myriad of sales tax levels. I don't have the staff, time or knowledge to collect state, county, city, and precinct taxes. If the states would agree to small online merchants collecting ONLY the state level sales tax, and there were a central filing website, it would be doable. I wouldn't oppose it and I've written my congress people multiple times suggesting this. Easy for the small (and large) merchant, and it gives the state some money.

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