Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Tue July 16 2013 12:19:32

Tax Collection Software for Online Merchants - Is It Really Free?

By: Kenneth Corbin

Sponsored Link

On Monday, we reported on a newly launched grassroots coalition of online sellers that formed to oppose federal legislation that could require them to start collecting sales taxes on purchases made by out-of-state shoppers.

Thirty of eMain Street's members flew to Washington in late June to make their case to members of Congress. Among their chief talking points: the free software that the states would have to provide sellers before requiring them to collect sales taxes is anything but.

In a letter to the leaders of the House Judiciary Committee (where the Marketplace Fairness Act, after passing the Senate, now awaits consideration), the coalition offered an estimate that the total costs of the bill would amount to between $20,000 and $300,000 in the first year, enough to wipe out the entire annual profits for some sellers.

The software might be offered by the states for free, but the real costs lie in the retooling of the shopping-cart and order-management systems to support the integration, overhauling product databases and training staff, the coalition argues.

"These numbers are based on actual invoices and hard costs for development, software upgrades, and employee time," said Drex Davis, CEO of Scrapbook.com and one of the organizers of eMain Street.

One of the leading providers of the free tax software, Tax Cloud, vigorously disputes those lofty estimates of integration costs. David Campbell, CEO of the company behind Tax Cloud, countered that a growing number of platforms have begun to "pre-integrate" the product, and that "integration efforts for almost any mainstream commerce platform" are paid for by the states.

The Marketplace Fairness Act - and similar legislative efforts at the federal and state level - has drawn sharp reactions throughout the ecommerce industry, including dire warnings from groups like eMain Street that new sales-tax requirements would effectively put scores of sellers out of business.

The real cost of the software is a central point of the debate. The estimates that Davis' group cites range widely. The software providers, and other advocates of the bill, argue that integration would be little more than trivial.

Which brings us to our call for comments from you, the sellers, software providers, developers and others who have hands-on experience with the systems in question. How much of a real cost are we talking about when we contemplate integrating the free software states would have to provide under the Marketplace Fairness Act?

About the Author
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.




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by: xcergy This user has validated their user name.
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Tue Jul 16 15:05:10 2013

Lets look at eBay.  They likely will offer to collect tax just like Amazon does for it's 3p sellers today.  Software costs are free, but will charge 2.9% (Amazon Payments/PayPal transaction fees).

Will eBay file those taxes?  They can't.  eBay does not know if their sellers have other venues, such as a B&M store, a website, or sell on other venues like etsy, Amazon, or some other venue.

Like Amazon, eBay will collect the tax, but it will be up to the seller to remit the taxes manually to over 600 'States' (US States, DC, US territories, and 565 Indian Nations).

I just filled out my SC DOR Sales Tax form.  It took over 30 minutes to compile the data, then logon to SCDOR to file.  Now they want me to do that 600x?

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by: TaxCLoud This user has validated their user name.
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Tue Jul 16 15:58:03 2013

While I can't speak to the costs of using other sales tax software or services, I can say this as TaxCloud's CEO: TaxCloud is free. Instead of charging to use TaxCloud, we receive a commission from states based on the amount of sales tax we help retailers collect. We designed TaxCloud from the beginning to be completely free to retailers, and we intend to keep it that way.

There have been charges that there are costs to retailers for training employees to use sales tax software, upgrading the software, and hiring developers. Here's why these don't apply to TaxCloud:

1. TaxCloud is integrated directly with the e-commerce platforms that most online retailers use to run their shops. That means that our developers work with the platform's developers to make TaxCloud available to users. Retailers using e-commerce platforms that are integrated with TaxCloud don't need to hire their own developers. If your platform has not enabled access to TaxCloud yet, you should ask them when it will be available.

2. Because TaxCloud is a real-time web service, not software that's uploaded, there are no upgrades or updates. We keep our tax rates up-to-date and add new features behind the scenes, so our retailers see those results automatically, without doing anything extra.

3. We designed TaxCloud to be easy to use for everyone. From registration to going live is usually as little as twenty minutes. What's more, once TaxCloud is activated for a store, there's next to no upkeep. If we're filing the store's sales tax returns, we ask that they review their returns once a month. Other than that, retailers don't need to think about it -- they can just set it up and forget it.

Thank you again for covering this important issue.

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by: iammainstreet This user has validated their user name.
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Tue Jul 16 16:52:55 2013

From an Avalara webinar on Youtube titled Sales Tax Showdown. A few things of interest, but the post-webinar questions the speakers mock the concept that free software will handle all of these issues. The best parts start at 55:00 but 54:00+ is pretty worthwhile for a few minutes. So I got it transcribed (99% or so accurate).
http://www.youtube.com/watch?feature=player_detailpage&v
=0OUChFkv_C8#t=3300s

Highlight:
Speaker
2 - A couple of folks have also asked about what they've read in the market place fairness act and that the technology will be provided to them, and I think that actually is pulled directly from SST in that this volunteer versus nonvolunteer concept. Using a CSP in Avalara is only one of a handful of CSPs. Can we talk to that at all? I mean the technology itself, is it provided? Do they get it for free? How does that look?

Speaker 1 - Well it's a double-edged sword because ... Double edged sword may not be the right analogy, but it's easy to say the state is going to provide the information that you need to calculate it, but when the rubber hits the road and you really figure out what you're being given in terms of what is currently available from SST states it's fairly primitive. So, that's where I'm going to just end it. Listen, if anyone thinks that the states are going to be in a position to provide a reliable, accurate rooftop calculation on an automated basis that's not what the states are going to do.

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This user has validated their user name. by: Tula

Tue Jul 16 18:23:13 2013

The software may be free, but there is still a butt-load of work that a retailer will need to do in order to make it work. Sure, sites like eBay can probably integrate such things by using their item categories to determine tax rates, but any seller who sells on his or her own web site or on other hosted venues that don't have complete category info, there is still the huge task of determining exactly what your item is and how to map it to the correct tax categories. For example, is a baseball hat considered clothing or is it sporting goods? Different states may have different opinions and different tax rates for it. And this is just one small example.

I work a day job as a software developer and have worked on ecommerce platforms. I also worked a consulting gig at Amazon in their financial group, so I've seen their databases and have actually pulled sales data for tax audits. It is not a small undertaking, given the size and complexity of the data. Shopping carts and checkout systems are also not simple things. To run them properly takes a lot of code and trying to shoehorn new stuff into that is not easy.

A company like Amazon can afford to pay someone like me to do such things, but a small business cannot and most won't have the kind of software or database skills of a geek like me. Given the sheer number of different tax jurisdictions, rates, and rules, this is not a cheap thing to implement. Trying to insert new stuff into a checkout process is not as clean and simple as some make it sound.

Claiming that the states will pay for our integration efforts makes me laugh out loud. I'll believe that when I see it. The impression I'm getting it that the big venues like eBay will handle it for us, but any sellers with their own web sites are on their own. That is a key point. It seems they want us all to be dependent on these big venues, which is highly unfair to small independent businesses who want to sell on their own terms without interference.

Additionally, what about the privacy of our data? Any of these free services will end up with access to our sales data. Are they going to use it to make money? Will they keep nagging us to upsell and buy more advanced products? Will we end up having advertising stuffed into our checkout process? What about performance? Suppose their web services are slow or down completely? Why should we have to depend upon an external party to manage a key part of our business?

For my own purposes, I would want a free database of raw tax data so I could do a regular download and integrate it into my process in the manner that suits my business best. Having to depend on external sources take away the control from the business and hands it to someone else. Maybe I'm a control freak, but if I'm going to be responsible for running my business and complying with a plethora of tax laws, I want control over running it my way, not how someone else thinks it should be run.

Yes, interfacing with credit card merchants and advertising  services are external processes, but these systems have been around for many years and most of the kinks have been worked out. New tax services, especially if run by government, are not likely to perform so well. Who will take responsibility for problems and errors in this process? Want to bet we sellers will get stuck holding the bag despite all the "no worries" we get from those pushing this stuff? You can tell our politicians have very little technical knowledge and are buying onto this "it's easy" baloney. Take it from a techie, it ain't easy and it ain't cheap. It reminds me of the rule of three I hear a lot in the software industry: you can have it fast, you can have it correct, or you can have it cheap: Pick two.

 :-)

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by: TomH This user has validated their user name.

Tue Jul 16 19:31:06 2013

I sell a little on eBay, a bit more on another venue, a whole lot of stuff on Amazon and some on a couple of my websites. Meshing and integrating all that will never be easy, free and worry free in my lifetime.

I'm totally with Tula on the tech and cost aspects of all this.

Under the present and actually only laws is Nexus. My Nexus for everything other than Amazon is my home state. I collect and pay sales tax for everything delivered to my home state.

By law I'm supposed to, like every other 3d party Amz seller collect and pay state sales tax on sales in states where I have Nexus. I'm sure everyone that is required to does that....

Now they want all of us to collect and pay sales tax for every state that has sales tax, regardless of Nexus. Every junk car sales person in America has more sense than the typical US Congress member.

I looked in detail on the TaxCloud website and did not see that they offered any solution for me re Amazon. So I'll wait to see what those dunderheads in DC do before trying consolidate everything.

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by: Drex Davis This user has validated their user name.
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Tue Jul 16 19:42:53 2013

Current software solutions are available to fewer than 30 out of 287 different webstore formats. In addition, 10 are expected to be covered if the MFA passes. That still would leave over 240 webstore formats that could not be accommodated and that DOES NOT ACCOUNT FOR CUSTOM CARTS or - like mine - hybrids which are integrated with Order management systems (and there are a lot of us that do that). It is naive to believe that taxpayers will cover this bill (and nowhere in MFA does it ever stipulate that integration costs are to be covered by the states - only the provision of a tool that sellers then have the burden of integrating). For our web store and database integration, we received a estimate of over $50,000. Another store of $1M received a bid of $62K because in order to get the software to work with his accounting system he has to upgrade from Sage 50 to Sage 100 (these solutions were never built to work with small business accounting software).  Another had a prelim bid for over $40K but she suspects the actual cost would be over $120,000 and perhaps higher because no software developer had ever under taken a solution for her Magento web store that she built before eBay bought it out. Based on what she was told, there is no solution in sight. Any solution would be a huge understanding that would have to integrate with all versions of eBay Enterprise systems and a huge number of separately built solutions (such as hers). The cost of building such software is immensely expensive and not a plug and “universal” play format as David Campbell (from the TaxCloud comment above) implies. When asked directly, he has acknowledged this fact.

NOTE that TaxJar, which eCommerceBytes wrote about, OPPOSES the MFA because it’s not possible for most of its smaller customers affected by MFA to manage (and he’s against the MFA even at a $10 million exemption or any limit that applies for based on our discussions with him because the profit margins of this business segment are simply too small and the integration and other compliance requirements too complicated and costly)

David Campbell and TaxCloud use the notion that the software integration is “free” as a selling ploy. It’s not. The taxpayer must pay for it but that would occur only for existing solutions, those that are able to accommodate the 30 to 40 out of 287 web store formats that current exists (as we've been told are covered by TaxCloud and Avalara). The MFA promises that these smaller online sellers would not have to pay for the audits - but this is only for mistakes made by the software, which is just a small fraction of the audit equation.  Most audit mistakes are made by the seller wrongly classifying product, which gets only more complicated when you're dealing with the classifications and exemptions of over 14,000 tax jurisdictions.  These errors and subsequent huge audit vulnerability are, according to the accounting associations, highly likely to occur. Audits to the seller that the seller wants to challenge would often require that they travel to different states and deal with governmental agencies and regulatory laws that are different from their own states. So, again, Mr. Campbell and TaxCloud so oversimplify the audit issue as to make it misleading.  In doing so, he leads one to believe that it is not a concern, when it really is a major concern.

So, where are we?  There currently does not exist “uniform” software that successfully integrates with the entire different Internet selling venues/platforms. Furthermore, it would be cost prohibitive for taxpayers to pay for all the integrations.

Still there is a simple solution.  Since the software providers claim that the software is "FREE" and the integration "EASY" they should provide all integrations for free.  Sounds fair to me?  Let them stand behind their claims.

If the MFA passes, we'd be happy to have them come onsite and do all our integration for us at no cost and save us a minimum in $50K.  I'm sure they'll be happy to do all of our product classifications, too, so that our products work with their software in a way that completely insulates us from audit risk.  

Since only state DORs have audit authority, even if you're in complete compliance, you won't be protected from the cost of the audit itself.  And as the MFA is written you could have an audit EACH YEAR from over 500 taxing jurisdictions.

Software won't protect you from that ....

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by: Patricia This user has validated their user name.

Tue Jul 16 21:01:05 2013

It really isn't fair to force sellers to pay for tax reporting software.  Here, in California, they have a very nice electronic form online for the reporting of california sales tax.  If the other states want to collect sales tax they should 1) provide the software and 2) make the tax uniform across the country.  California's state sales tax form alone would blow your mind with different districts charging different taxes and and extra one of two percent in several cities.  Its madness!  Its THEIR money so they should make it easy!

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by: xcergy This user has validated their user name.
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Tue Jul 16 23:06:13 2013

Honestly, I'm not trying to throw rocks at TaxCloud, they do offer a good service, but they too, have problems.

I sell on eBay, websites, and Amazon.  Taxcloud will work on my website (ZenCart), but last I checked on the support forum, they can't handle (properly charge tax for) discount coupons.

Next, TaxCloud uses a Tax Identification Code (TIC) to identify if a food item is a whole bagle (I NY, it is non-taxable), a sliced bagel (classified as prepared food, taxable), or if a candy bar contains sugar (taxable), or if the same bar is not taxable (contains rice or nuts).  If some on a website, Taxcloud uses tax code number xxx.  If sold on eBay, it would have a tax number of yyy (eBay uses different software, and Amazon would require tax number zzz (different software system than eBay's or Tax Cloud.
Let's say I do not like TaxCloud and want to change providers.  Recoding and new IT costs would occur

And again, what TaxCloud, (or MFA) have not addressed, are those multi-platform sellers that cannot take advantage of the automated services.

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by: tony bonn This user has validated their user name.

Wed Jul 17 00:20:00 2013

the tax cloud ceo is very disengenuous if not an outright liar.

this law is a monstrous advancement of the nazi state, turning everyone into a stasi agent to serve the states' ravenous lusts for money.

secondly, contrary to the ceo of tax cloud who is about as truthful as a politician, there is no such thing as free software. someoneone pays for it. if you don't pay for it up front, you will pay for it through the back door.

this is another law promulgated by american nazis to enlarge the state and run out of business small business in favor of the too rich to fail monsters. non-connected sites who don't want to be part of the matrix will be cut off.

tax cloud solutions favor those who are well connected, forcing everyone onto the platforms which use tax cloud's services or other comparable firms. mom and pop websites will be ancient history.

if you think that you can absolve responsibility for filing errors made by tax cloud, you are a looney. and there will be errors.

these programs always start as small, oh it's really nothing programs, and transmogrify into monsters. just think of your current tax filing situation.

there are so many software platforms and packages which started free to sucker you in, but in time became big ticket items. the real cost of software is not in the software.

with your tax information in the cloud, you can damned well be certain that you are feeding the nsa even more information about your life. this information will eventually be used against if you become a threat to anyone.

the whole idea of a sales tax is evil. every single transaction you conduct makes you a creature of the state. it owns your movement and breathing.

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by: blaumann2 This user has validated their user name.

Wed Jul 17 09:26:21 2013

Manually send in payments for hundreds of jurisdictions? Not me. I will get a minimum wage job and do flea markets first.

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by: Xander This user has validated their user name.

Wed Jul 17 13:11:02 2013

Seriously, if the MFA gets passed we'll have to either sell only in our home state or shut down. Although California is a large state, selling to only one state is not sustainable.


When I read all the pros and cons on the MFA, I hear nothing short of shallow political double talk. Experience proves nothing is free and this will be far from it.

One thing is for certain, if the MFA is passed, it will further accelerate the loss of independent mom and pop services and products which in itself, would be a tragic loss.

The true solution is for the states and feds to reduce their costs of operation, instead they continue to look for new streams of revenue and carry on in the usual accustomed wasteful fashion.

There's only so much blood to squeeze out before the carcass dries out.

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by: mindelec This user has validated their user name.

Thu Jul 18 03:28:00 2013

" We designed TaxCloud from the beginning to be completely free to retailers, and we intend to keep it that way."

there was a another company who said the same thing, in fact their slogan was "always free".  that company was... PayPal.  so saying you intend to keep something free really doesn't hold much water with people.



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