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Internet Sales Tax Coming? SAP Has Your Back

by Kenneth Murphy

April 24, 2013

by Ken Murphy

@KMurphyWisPubs

It’s interesting to see the somewhat prominent role accounting software is playing in legislation before the U.S. Senate. Sometime in the next week or so, the Senate will vote on the Marketplace Fairness Act, which would give states the authority to collect taxes from out-of-state online retailers that sell goods to their residents even if they don’t have a physical presence in the state. Supporters of the legislation, which was introduced by Sen. Mike Enzi (R–Wyo.), argue that it will “level the playing field” with brick-and-mortar stores compelled to collect their state’s sales tax from consumers, regardless of where the purchaser happens to reside.

Supporters also argue that this isn’t a new tax, as consumers are technically required to report out-of-state online or retail purchases today, so when I buy a set of tires in tax-free New Hampshire I’m obligated to report the sale to my home state of Massachusetts and fork over a 6.25% sales tax. Who knew?

So, where does the accounting software fit in? Well, one of the arguments floated by opponents of the legislation is that it places an undue burden on small online retailers, who would in theory be forced to keep track of the nearly 9,500 tax jurisdictions in the U.S. A tax-exempt consumer good classified as “food ” in one state, for example, may be taxed as “candy” or “entertainment” in another. (This is the “cotton candy” argument espoused by legislation opponent Overstock.com.)

This argument hasn’t gained a lot of traction, however, and the reason is that even opponents of the legislation know that online retailers won’t be using a pencil and scratch pad at point of sale to calculate the tax it needs to charge and remit to each of the 50 states.

Said Enzi last month, perhaps thinking of any one of a number of applications available from SAP ERP Financials, or by SAP partners such as Vertex, “Do not let the critics get away with saying this kind of simplification cannot be done. The different tax rates and jurisdictions are no problem for today’s software programs.”

One of which is highlighted in the lastest SAPinsider “Solutions for the CFO” Special Report. This article describes how Lenovo transformed its indirect tax compliance processes by combining SAP ERP Financials with ONESOURCE Indirect Tax solution from Thomson Reuters.

The figurative enterprise software horse is out of the barn, legislation proponents argue. How can an online retailer balk at tracking and calculating online sales tax, when organizations today – retailer or otherwise – routinely depend on enterprise software to run virtually every aspect of their business suite?

That leaves opponents of the Marketplace Fairness Act circling the wagons around a scant few arguments at their disposal.  One is dying the s ame death at the hands of technology as the argument that collecting a tax would be too complex for retailers. Retail stores, opponents say, have an advantage over online sellers because consumers can see, touch, or perhaps try on the merchandise. Not so, say those in favor of the Marketplace Fairness Act, and smartphones and “showrooming” are the reason why; consumers can try on a pair of pants at Macy’s and buy the same garment from Amazon before they leave the dressing room.

Whatever the fate of this legislation, it’s clear that enterprise software will have played a part. Now, about those tires purchased in New Hampshire. If the Massachusetts tax collector knocks on my door, I’m going with the dog-ate-my-homework “lost my receipt” excuse. Will that work?

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