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Internet Sales Tax

How To Avoid Collecting Internet Taxes Under The Marketplace Fairness Act of 2013

By Internet Lawyer
internet tax collector

Uncle Sam wants you to be an Internet tax collector for 7,645+ state and local governments

Although tax evasion is illegal, tax avoidance is okay. If the Marketplace Fairness Act of 2013 becomes law (it was passed in the U.S. Senate this week), there’s no reason your online business should become an involuntary tax collector for the welfare state even if the so-called “Amazon tax” is constitutional (debatable).

Fortunately, there’s a big loophole in the Senate version (S.743) of this Internet tax legislation that small businesses can use. It’s likely that any version of this bill that passes the House will expand the loophole rather than reduce it. In fact, eBay is lobbying to make the loophole 10 times larger than what passed the Senate.

What is this Internet tax loophole?

Sec. 2(c) – SMALL SELLER EXCEPTION. A State is authorized to require a remote seller to collect sales and use taxes under this Act only if the remote seller has gross annual receipts in total remote sales in the United States in the preceding calendar year exceeding $1,000,000. For purposes of determining whether the threshold in this section is met, the gross annual receipts from remote sales of 2 or more persons shall be aggregated if— (1) such persons are related to the remote seller within the meaning of subsections (b) and (c) of section 267 or section 707(b)(1) of the Internal Revenue Code of 1986; or (2) such persons have 1 or more ownership relationships and such relationships were designed with a principal purpose of avoiding the application of these rules.

There you have it. In some instances you can avoid being an Internet tax collector under the misnamed Marketplace Fairness Act by having less than $1 million gross sales annually. And under limited circumstances, you can evade this threshold by splitting your business into separate entities if the main reason for the split is not evading the tax collection requirements. If you decide to make structural changes to your business, such as splitting into separate entities, you’ll want to work with both your Internet lawyer and your accountant to make sure you do it correctly so that you don’t cross the line from legal tax avoidance into illegal tax evasion.

Remember, there is still time to kill this federal Internet tax legislation.

Just because some sleazy Senators circumvented the Senate’s own rules for considering such legislation to ram it through without fair hearings doesn’t mean the U.S. House of Representatives is going to follow the same path. In fact, it appears that, unlike the Senate, the House is going to proceed slowly and actually consider the pros and cons of the proposed federal Internet sales tax legislation (the House version of this Internet sales tax legislation is H.R. 684).

You can contact your Congressman and tell him to vote against any legislation that forces you to become an Internet tax collector for states where your business is not based. In the alternative, you may wish to promote the eBay approach, that is, creating an exemption for businesses that do less than $10 million in gross sales annually or have less than 50 employees. However, remember that it is easier to kill a proposed piece of tax legislation that contains some exemptions than it is to later oppose subsequent legislation that will remove reduce or eliminate the exemptions when the government wants more tax revenues (in the interest of even more “fairness”).

What about existing state Internet tax law?

It’s also important to remember that whether or not this Internet tax legislation becomes law, it won’t affect any pre-existing obligation you have to collect sales taxes from online clients who reside in the state where your company is based. Consult with your accountant and Internet lawyer if you have any questions about this in-state Internet sales tax issue.

Amazon Texas Internet Sales Tax

By Internet Lawyer

Just a few thoughts on Amazon’s tax deal with the Texas Comptroller.

First, both parties win. Amazon will not have to fork over the past Internet sales taxes the Texas Comptroller was demanding. The Lone Star State will get more jobs as Amazon expands its physical presence including commercial warehousing and distribution centers. The state will also get future sales tax revenues collected by Amazon from Texas residents.

Second, Amazon is not anti-sales tax. The company supports the federal monstrosity known as the Main Street Fairness Act.

Third, it is small business, not the Amazons, that get crushed by taxes and regulation.

Illinois Internet Tax Declared Unconstitutional

By Internet Lawyer

An Illinois county judge has declared the state’s Main Street Fairness Act unconstitutional. The “Amazon Tax” imposed by this state legislation is typical class warfare by a bankrupt government looking to loot funds from ecommerce transactions.

Given a similar ruling on Colorado’s Internet sales tax, you can expect this issue to ultimately be decided by the U.S. Supreme Court.

Of course, there are special interests and corrupt politicians who are not content for the nation’s highest court to rule on the constitutionality of state taxes on interstate commerce. They intend to ignore the Court’s 1992 Quill decision on the same issue that struck down taxes that interfered with interstate sales by mail order.

You will see an unholy alliance of Wal-Mart, Amazon, and politicos like “Dick” Durbin try to ram through a federal Internet sales tax. Never underestimate the greed and corruption of those involved when there is money to be robbed from entrepreneur Peter to give to sloth Paul.

Of course these second-handers don’t realize that at some point those who produce will start asking “Who is John Galt?

Court kills Colorado Internet sales tax

By Internet Lawyer

A federal district court judge just ruled Colorado’s Internet tax (nicknamed the “Amazon tax”) is an unconstitutional burden on interstate commerce.

That’s the good news.

The bad news is that Amazon and other big online retailers have been cooperating with efforts to pass a U.S. federal Internet sales tax supported by offline stores like Wal-Mart under the term “Main Street Fairness.”

Why?

Big retailers like Amazon have the infrastructure in place to collect and remit Internet sales taxes but it would be easier if they just paid the federal government instead of 50 states and thousands of cities.

Smaller online competition gets hurt because most business website owners will not have the ability to handle collection and remittance of sales tax to places beyond their home state or province.

On the bright side, maybe this finding that the Colorado Internet sales tax is unconstitutional will encourage Amazon to grow a pair and actually fight this issue up to the U.S. Supreme Court instead of cooperating to get a federal Internet sales tax in place.

To learn more about Internet taxes, check out Chapter 27 of my book on Internet Laws: How to Protect Your Business Website Without a Lawyer.

7 Internet Law Predictions for 2012

By Intellectual Property, Internet Lawyer

1. Hollywood Retreats

The entertainment industry thought it had bought enough politicians, plus foolish support by GoDaddy (now retracted), to ram through SOPA/PIPA legislation. Pretending to be about property rights, this horrible legislation would cripple ecommerce while allowing politicians in power to crush free speech online.

Now that Google, Amazon, Facebook, etc. are fighting back, together with civil rights groups and social media, it looks like Hollywood will retrench and regroup until after the November 2012 elections. This battle isn’t over by a long shot. Look for the entertainment industry to try one last shot to push through SOPA/PIPA when Congress critters return to D.C. More lipstick will be put on this legislative pig and it will come back in 2013 under a different name (Protect the Children Act, Save the Puppies Act, Don’t Starve Grandma Act, etc.) designed to create more sympathy.

Let’s hope large ecommerce sites continue to fight and GoDaddy has learned its lesson.

2. Privacy Changes

As Congress deadlocks on Internet privacy legislation, look for the Federal Trade Commission (FTC) to move forward with additional regulatory protection for children. Either in 2012 or the following year, look for bans or severe restrictions on GPS tracking of children by smart phone apps.

In the meantime, the private sector will come up with additional ways to both protect and circumvent Internet privacy. Whatever comes out of Washington will be obsolete before it becomes law.

3. New Biz Opp Disclosure Requirements Ignored

Effective March 1, 2012, there are new FTC biz opp/work-at-home disclosure requirements. Expect most Internet marketers to ignore this requirement. Some will make disclosures that contain misleading information designed to fool consumers. Few will get caught. The FTC will grab some headlines by suing and confiscating assets of a couple of the really bad apples.

4. Internet Sales Taxes Move Forward

The Federal “main street fairness” Internet sales tax legislation will have the support of both Wal-Mart and Amazon. Expect crony capitalists at the U.S. Chamber of Commerce to jump on the bandwagon.

Broke states (California, Illinois, etc.) will push heavily for a federal Internet sales tax on the mistaken assumption they will receive a chunk of the tax money from D.C.

The primary advantage that small business website owners have is that the November 2012 elections provide no incentive for the Republican House and the Democrat Senate to cooperate on agreeing to the time of day or anything else. Plus, there seem to be few Republicans in either house that want to face their constituents to defend imposing a new tax in the middle of an economic recession.

5. Want to bet?

It looks like the U.S. Department of Justice is rethinking its use of a 1961 law to arrest and prosecute the owners of Internet gambling sites. Expect broke state governments to push heavily for legalization of intra-state Internet gambling. In other words, these state governments are going to want the federal government to permit gambling sites to be licensed on a state-by-state basis for gambling only by residents within the one state where each site is licensed.

It remains to be seen whether traditional offline gambling interests will support or oppose such plans. Some of the major U.S. casino companies are already investing in joint ventures with European gambling sites with the expectation of rolling out U.S.-based sites once they become legal.

6. Denial of Service

In the interest of “homeland security,” the U.S. government will continue to arbitrarily shut down websites without affording due process in court. There will not be a backlash until the government overreaches and shuts down a social media website that has political backers on Capitol Hill willing to subpoena and grill those involved.

7. Icann of .Coke

The FTC will continue to pressure Internet Corporation for Assigned Names and Numbers (ICANN) about the foolish decision to sell .brands generic top level domain extensions for six figures. If ICANN proceeds, expect a wave of lawsuits to swamp the courts as Competitor A buys the .CompetitorB extension to steal traffic away from Competitor B.

…Wishing you the best in the coming year. Let’s hope the politicians don’t muck up ecommerce for small business owners. Congress doesn’t understand the Internet so it should just stay on the sidelines instead of ruining it for the rest of us.