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Online Sales Taxes? One Seller Says Let PayPal and Visa Collect Them

Few topics garner the ferocious kind of reaction from the world of small business quite like taxes. As evidenced by responses to our discussion of owners of physical shops clamoring for more online sales tax collection, many ecommerce pros feel the decision made in Quill Corp v. North Dakota ought to be good enough until the Marketplace Fairness Act (MFA) emerges from languishing in Congress and takes effect.

But the provisions of the Marketplace Fairness Act aren’t satisfactory to all online sellers either. Keith Yockey, among those who contacted EcommerceBytes about the brick-and-mortar agitation, referred to this last year as “e-unfairness” (some quarters refer to MFA as “e-fairness”) in his assessment of MFA. EcommerceBytes reached out to Yockey to revisit his take on the topic.

EcommerceBytes: If the Marketplace Fairness Act takes effect, do you feel the $1 million exemption is a sufficient limit? Should it be higher or lower?

Keith Yockey: Yes, the exemption should be higher. Much higher. $1M gross sales yields only 5-10% net take home. That’s too small to add the burden of collecting Sales Tax. $10M would be good. $30M would be better, or tie it to SBA Guidelines.

EcommerceBytes: Considering the presence in the online sales tax collection marketplace of companies like TaxCloud, Avalara, and CCH SalesTax, do you think the potential burden of state sales tax collection on online sellers has been lessened since your original post?

Keith Yockey: Tax services: They are not free. Many want $$ up front, a subscription fee, and a transaction fee. Collectively, they only handle 40 of the 300 shopping carts out there.

You have IT costs to install, code inventory and yearly/monthly maintenance. None share a common taxability database, nor does automated filing work for those that sell multi-platform. Neither eBay nor Amazon will file taxes for you, nor can they. And I have not begun to address the audit issues not covered by MFA. (Reporter’s note: FedTax’s TaxCloud currently advertises itself as being completely free for retailers.)

EcommerceBytes: In your post, you propose payment processors (merchant accounts) take on the role of sales tax collection and processing. What current-day obstacles would have to be overcome in order for the likes of Visa, MasterCard, PayPal, etc to accept this new role?

Keith Yockey: Payment processors charge 2-5% of every tax dollar collected. Those dollars don’t belong to me, but rather the State DOR (department of revenue). To my way of thinking, that’s their bill to pay, not mine. They (the States) can negotiate a better fee rate and they get instant dollars as the tax does not travel via one or more transactions. The law required to change this process is minimal at best.

The next thing needed is a universal taxability database. Why no one has thought of not tying taxable items to UPC codes remains a mystery to me. Did you know that in California, of the 6 types of Ensure Drink products that two are considered food (non-taxed) and the other 4 are taxed (food supplement). There are thousands of similar examples, and businesses should not be required to know tax law 3000 miles away.

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David A Utter
David A Utter
David A. Utter is a freelance writer based in Lexington, KY. He has covered technology topics from search to security to online business and has been quoted in places like ZDNet and BusinessWeek. He considers his appearance on NPR's "All Things Considered" with long-time host Robert Siegel a delightful highlight. You can find him on Twitter @davidautter and on LinkedIn.