But the social network’s advertising revenue grew 18.4% during the quarter.
New developments keep the Internet sales tax issue in the forefront. The latest: A study of the costs of collecting sales tax and the first test of the Streamlined Sales Tax Project.
It’s been only a few months since Congress last debated the Internet sales tax issue. But as Congress’s moratorium on Internet taxes approaches expiration on Oct. 21, the topic of who gets taxed, when, where and how remains a hot issue. In early August, the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law voted to extend the moratorium on Internet taxes, known as the Internet Tax Freedom Act. But the action failed to address the sales tax issue. And since then some new factors have emerged that could help move the issue forward.
For starters, a group of state government officials and members of the business community have formed a new project to study the compensation that retailers receive for collecting sales tax and how that compensation might apply to online purchases. Some states compensate retailers for the cost of collecting tax while others do not. The pending argument between state governments and retailers regarding the collection of sales tax on online transactions is prompting the new group to look at how much it will cost retailers to collect taxes both before and after potential tax law simplification, says Diane Hardt, a co-chairperson for the Streamlined Sales Tax Project which is seeking to develop a legislative model to simplify tax laws for retailers.
The yet-to-be-named collection cost study is working on a Request for Proposals to commission the study to an outside party. That RFP should be completed by the end of October, sources tell Internet Retailer. The study is being co-chaired by Wayne Zakrzewski, tax manager at J.C. Penney Co. Inc., and Dan Bucks, executive director of the Multi-state Tax Commission.
In another development, two technology firms that serve the government and tax markets are merging. Government electronic payment service provider govONE Solutions LP, which provides payment services to 23 states, acquired tax software provider Taxware International Inc. Aug. 21. Taxware is a certified service provider for the Streamlined Sales Tax Pilot Project in North Carolina. The pilot also is running in Michigan, Wisconsin and Kansas. Taxware automatically calculates sales tax for users via a remote Internet server and sends the information to a seller’s web site so customers can see the sales tax on their purchases. Using this type of software eliminates the retailer’s need to develop an inhouse tax-calculating system, the cost and complexity of which have long been a concern for retailers averse to dealing with online sales tax collection.
By integrating the services of both companies, govONE will be able to offer its government clients a solution to the demand for a technology that they can use to calculate and collect e-commerce sales tax. A known entity in payments to governments, govONE processes 40 million payments valued at $1 trillion per year and is considered a leader in government payment services. Taxware will operate as a division of govONE Solutions.
Forrester Research says the deal between govONE and Taxware will provide the technology needs envisioned by the SSTP and Forrester believes this will encourage Congress to grant states the ability to collect taxes on remote sales by 2005, says Jeremy Sharrard, Forrester associate analyst. He believes that a technology provider that can handle government payment processing as well as sales-tax calculations will hasten the adoption of online sales taxes.
And in yet another development, online retailer O.C. Tanner Recognition Co., a provider of employee recognition products, is using the technology developed by Taxware to test the sales tax calculation and remittance software for the Streamlined Sales Tax Project. The test went live Sept. 6. Taxware is the first certified service provider. Certification means that the states in the project have certified that Taxware’s system calculates the taxes properly. As a result, the states will assume the calculations on O.C. Tanner’s tax returns are correct. The SSTP says this is the first time that any taxing authorities have certified transaction tax calculation software.
But even with the possibility of a survey that lays out the cost of tax collection and the likely improvement of tax software available to the market, the future of Internet sales tax resides with Congress, where two bills continue to gain momentum. Senate bill S. 512 and House bill H.R. 1410 both extend the tax moratorium for four years and expand states’ ability to collect from remote sellers. But the two bills require states to dramatically simplify their sales tax systems. Opposition bills include H.R. 1552, the one the Judiciary Committee’s subcommittee approved in August, and H.R. 1675, both of which permanently extend the moratorium on Internet access taxes and extend a five-year moratorium on multiple and discriminatory taxes on e-commerce. Yet another Senate bill, S. 288, sponsored by Sen. Ron Wyden (R-OR), requires states to simplify taxes first before allowing them to collect taxes from remote retailers.
Players on both sides of the issue are digging in their heels: the National Retail Federation and the National Governors Association, on the one hand, favor collecting sales tax on Internet purchases while the Direct Marketing Association, on the other, opposes it. They continue to spar on the issue, releasing statements with every movement. The NRF, seeking to level the playing field among online and offline retailers, spoke out against the two House bills, (H.R. 1552 and H.R. 1675) sponsored by Rep. Christopher Cox (R-CA), that would extend the Internet Tax Freedom Act for five years without addressing the sales tax issue. “In an industry where profit margins are as narrow as they are in retail, the lack of sales tax is a significant price advantage,” says Scott Cahill, vice president of government and industry affairs. “We believe there should be a level playing field, where sales tax is collected regardless of where you sell. Every retailer should have the same collection responsibility. We don’t oppose the moratorium. What we oppose is that it does not address the sales tax loophole.”