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Senator Enzi doesn’t understand his own Marketplace Fairness Act

Senator Enzi from Wyoming is the lead sponsor of the Marketplace Fairness Act in the Senate.

Yesterday on the Senate floor he said many things about the MFA that were false, but the most head-scratching statement he made was when he said government-mandated software was so easy to use that “all [sellers] have to know is the [customer’s] zip code.”

Come again?

Anyone who knows anything about sales tax collection knows you cannot find the sales tax rate of a jurisdiction using the zip code.  The reason is that multiple jurisdictions overlap zip codes.  You have to know an exact street address to know which jurisdiction’s rate to apply.

The senator who sponsors the Marketplace Fairness Act doesn’t understand that sales tax jurisdictions do not map to zip codes?

Say it isn’t so.

Watch the startling admission below.

 

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1,000 Retailers Affected? Try 3.5 Million.

Proponents of the Marketplace Fairness Act have made the preposterous claim that this bill would only affect 1,000 retailers. This talking point has been repeated on the Hill many times. Here is a clip of Dick Durbin making the preposterous claim during a Congressional hearing:

First, we must point out the obvious. There are tens of thousands of small business who have joined coalitions like ours, including the We R Here Coalition and eBay Main Street to fight back against MFA. If only 1,000 retailers will be affected why are there tens of thousands who have joined our groups and are actively fighting to defeat the bill?

Second, in the clip above, Senator Durbin claims that there are only 11 retailers who will be affected by the Marketplace Fairness Act in the entire state of Oregon. Let the record state that we have more than 11 Oregon business owners in the eMainStreet Alliance and none of our Oregon members were named by the Senator. We have provided names and included signatures of Oregon businesses in our letter to Congress.

Third, the actual number of small businesses that will be adversely affected by this bill could be in the millions! But, don’t take our word for it; Rick Smith of MarketplaceFairnessCoalition.org recently discovered a hidden video by FedTax/Tax Cloud–a Certified Software Provider (CSP) that has openly lobbied for the passage of MFA– wherein they assert that the MFA will affect up to 3.5 MILLION retailers!

“Between 350,000 and 3.5 million retailers will be impacted by the new law ….” — Tax Cloud Video

We believe that if there is a small seller exemption in the bill, the number of affected small businesses would be close to the number Tax Cloud (Fed Tax) reported: 350,000.  Furthermore, proponents plan on getting rid of the exemption over time so that every remote seller in American will be entangled by this bill. So, even if ‘only’ 350,000 are affected at passage (with a small seller exemption in place), 3.5 million retailers will ultimately be impacted by compliance burdens and unfair regulations.

Once their video’s existence was discovered, Tax Cloud pulled it from the web and filed DMCA takedown notices against parties that repost it. But that won’t work. The cat is out of the bag and the veil has slipped. You can read the full transcript of the video and watch the clip in question here. The link also provides more details about Tax Cloud efforts to hide their revealing (and pernicious) video secret.

 

 

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Secret Video Uncovered – Tax Cloud Says Marketplace Fairness Act Will Affect up to 3.5 MILLION Retailers

We’ve taken issue with Tax Cloud/Fed Tax and their CEO David Campbell before. Campbell has repeatedly made misleading statements to the public, to the media and to elected officials about the capabilities of his sales tax software and the impact of the MFA. You can read more about that here and here.

Tax Cloud/Fed Tax, Avalara and other CSPs (Certified Software Providers) stand to make billions of dollars if MFA/MITFA gets rammed through.  They know that if the MFA passes, it will impact an enormous number of small businesses and they are rooting for just that so they can profit off the ensuing burdensome regulations.

The problem is, up until now, proponents of the MFA – including the Certified Software Providers – have grossly (and we would argue, purposely) understated the real number of individuals and small businesses that would be ensnared and impacted by the MFA so they can convince lawmakers that it will only hurt a small number of small businesses.  Proponents have been coy (at best) and downright dishonest (at worst). Some have even suggested it will only affect a thousand retailers (that is the downright dishonesty we’ve been talking about).

Nevertheless, the veil has slipped. A promotional video by Tax Cloud was recently uncovered by Rick Smith of MarketplaceFairnessCoalition.org. In the video Tax Cloud / Fed Tax admit the real impact of the MFA:

“Between 350,000…and 3.5 million retailers will be impacted by the new law ….”

Tax Cloud also suggests a potential windfall for their business:

“…an opportunity of 1.3 billion dollars for Fedtax.”

Once the video was discovered, Tax Cloud pulled it from the web and they have filed DMCA takedown notices against parties that repost it. But that won’t work. The cat is out of the bag. You can read the full transcript of the video and watch the clip in question here.

We have made countless calls to lawmakers over the past two years and even visited personally with many of them. In many  of those meetings they’ve said that proponents, including the certified software providers, told them that the legislation would only affect a thousand retailers or so.

Please use the Tax Cloud transcript when you go and visit or call your representatives about this issue.  It is quite compelling to show what proponents are admitting when they think nobody is paying attention. 

 

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David Campbell CEO of FedTax has a TruST Problem

In 2012, in a letter to the Governor of Maine, David Campbell, CEO of FedTax, tried to garner support for remote-seller use-tax collection legislation by claiming that any retailer that uses a shopping cart or order management system could integrate and use his third-party tax collection system in 20 minutes (or less).

Any retailer that uses an online “shopping cart” or order management system can register with our service and be ready to collect sales tax in 20 minutes (or less), no matter how small they are.” (emphasis added) — David Campbell (CEO, FedTax)

Many members of eMainStreet have been offended by this claim, not only because it is patently false, but also because proponents of the MFA have been using Campbell’s false claims, like this one, to mislead lawmakers.  Today, in response to a study about the true costs of sales tax software by TruST which blew up this falsehood, Campbell admitted that his software – TaxCloud – does not do what he previously claimed. Continue Reading →

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TaxCloud, David Campbell and the Marketplace Fairness Act

TaxCloud is a sales tax calculation software made by the for-profit company FedTax. If the Marketplace Fairness Act passes, tens of thousands of small businesses will be forced to use either FedTax’s TaxCloud software or software provided by one of the other five certified software providers (all of them for-profit businesses).

FedTax would likely profit handsomely if the Marketplace Fairness Act (MFA) were to pass. In Fact, collectively, certified software providers could make hundreds of millions of dollars at the expense of taxpayers and small businesses.  One of the other certified software providers, Avalara, has already raised around $49 million in Venture Capital funds from Benaroya, Pioneer Venture Partners, and Sageview Capital.  One venture investor said that the VCs believe the MFA could be  “a big driver and a catalyst for the industry.”  David Campbell, FedTax CEO, appears to be pursuing big investment dollars, too.

“We are building contacts with institutional investors,” – David Campbell, CEO of FedTax.

David Campbell and his company FedTax will benefit if the MFA passes, so we can understand his enthusiasm for the controversial legislation. But in our opinion Campbell is more than merely enthusiastic. Continue Reading →

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Avalara and the Marketplace Fairness Act

Avalara is a venture-funded, leading provider of sales tax and compliance automation services.  A director for the company recently spoke at an event held by proponents of the Marketplace Fairness Act (MFA) and Fortune magazine recently featured them as a big “winner” if the MFA passes.  Yet, Avalara has publicly expressed  how burdensome and crushing sales tax compliance is for remote sellers.  This does not change if the MFA passes, hence the need for their software, or software like it, in order to help alleviate some of this enormous burden.  The quotes below (clearly marked with quotation marks and with a gray background) are from their publicly available white papers, with a large portion of the quotes found in their publicly published Sales Tax Survival Guide 2013.  Avalara aims to alleviate some of the burdens and risks foisted on small businesses via the Marketplace Fairness Act and they will be compensated handsomely for it.  But small businesses have repeatedly pointed out (hereherehere and in a  joint letter to congress and even in person to Congressional Reps) that software (even when subsidized by taxpayers) is not sufficient. Not even close.

In fact the American Association of Attorney Certified Public Accountants (AAA-CPAs) strongly opposes the Marketplace Fairness Act because software can’t protect small businesses from the costs and audits. In an open letter they say “Proponents of the proposed legislation would like you to believe that free or low cost software can so simplify the collection process for remote sellers that the time and effort to comply will be minimal. This misconception could not be farther from the truth.”

Now let’s look at Avalara’s quotes.

Note: Remote sales tax collection and remittance requirements introduce a crushing compliance burden on small businesses. 

“Considering the already impenetrable maze of sales tax collection rules, businesses face an uphill battle this year. Sales tax compliance in 2013 requires more resources and expertise than most small to midsized businesses possess.[i]

“Current state and federal proposals to change sales tax collection requirements on remote sellers such as online retailers add to an already difficult compliance environment for businesses.” [ii]

On average, sales tax compliance costs small and mid-sized businesses three to 15 cents per sales tax dollar collected. According to the U.S. Census Bureau, failure to account for that expense is one of the principal causes of small and mid-sized business failure in the United States. Why? The components of this compliance expense are difficult to pinpoint and often overlooked. The costs are hidden in staffing, compliance, accounting systems, information technology, and other business infrastructure.  In addition, sales tax compliance is a passthrough activity that adds no value to the bottom line. Sales tax collection requires you to act as an agent of each state in which you have nexus and collect and remit sales tax accurately. And if you don’t do it correctly, accurately and on time, your business can face heavy fines and penalties.[iii]

Continue Reading →

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Is Avalara Rooting Against Small Businesses?

NOTE: This is an open letter to Avalara from one of our members. Many of us are disappointed with their actions.

Dear Avalara,

Many of us do not appreciate Avalara’s continuous efforts to understate the complexity and all those who read articles written by someone affiliated with Avalara need to be aware that Avalara will be one of the greatest financial winners should this bill become law. (See Fortune.com).

#1 – Software only automates things if given the right inputs. The black box will take an input and give an output. The inputs need to be a) what the item is in a very detailed way that each state defines differently, b) the shipping location. No software is going to be a mind reader to know what the item is. Many of us sell unique items for which there are no UPC codes. Our very business models depend on uniqueness and constant supply of fresh unique products. The biggest risk of audit won’t come from using a 6.25% rate rather than 6.35% (and certainly software will get that right) but from misclassification of the item because a silk scarf is a taxable accessory in one state and a non-taxable apparel item in another, and in another taxable but only if it is machine painted but not if it is hand painted.

#2 – Many customers calculate their own tax and pay by check. There is no software which can automate that. How do we help someone who isn’t online, doesn’t have a computer, doesn’t want to learn to have a computer continue to shop remotely?

#3 – The software integration efforts are enormous. Avalara cannot offer anything that “plugs and plays” with our many home grown systems, all of which must have the same rules and must also know the specific classification of the products. We have our backend ERP system, our front end web systems, our WHS which charges the credit cards and ships the orders, and our returns system. Anyone on a custom system will need to figure out how to do, test, and maintain custom coding to talk to the “free” software.

#4 – Speaking of that free software, as the MFA is currently written, that’s 26 different pieces of free software (one for the SSUTA states and 1 for each of the others), not all of which will work in the same way. Of course, that creates the need for very non-free software from a company like Avalara because no one could possibly integrate the 26 freebies, so we pay dearly for a piece of middleware, right?

#5 – And what about shipping and handling? Taxable or not? Well… that depends on the state. Some states, it is always yes. Some it is always no. Some it depends on whether the item is taxable. Okay.. for those of us with $ based shipping tables… say a consumer owes $19.95 in shipping and in their state 2 of the 4 items are taxable and 2 are not. Do we charge sales tax on half the shipping and handling? Do we weight the taxable amount of shipping and handling based on the dollar value? What happens when someone returns an item for which some of the shipping and handling sales tax was taxable. If we don’t refund the shipping and handling, do we refund the portion of the sales tax on the shipping and handling that was due to that item. Good luck getting the same answer twice from any state. Given that every company’s shipping and handling logic is different based on its business model, pricing strategy, dominant channels etc … we need a whole new level of integration between our shipping calculations and all this “free software.”

So please, stop saying it is easy, when it isn’t. And, if this becomes the law of the land and everyone figures out how to get it done (presuming they can do so and even stay in business), Avalara will come in and try to be the savior… for a price!

Terri S Alpert
Founder and CEO
Uno Alla Volta and The Artisan Table