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. We believe he is misleading the public about the MFA's costs to small businesses in an effort to push the legislation forward. On several occasions, Campbell told the media, the public, and even Congress that it will be easy for small businesses to comply with the MFA and has even gone so far to say that the costs will be "zero". In 2010, during a Congressional hearing on this issue, Campbell said:

"TaxCloud handles every aspect of sales tax collection and remittance for our clients. Most merchants are able to set up TaxCloud in less than 20 minutes. TaxCloud can be integrated into virtually any accounting or e-commerce shopping cart system, and it is completely free to merchants." - David Campbell (emphasis added)

He commented on an article on The Next Web.

"Our service is completely FREE for online retailers (even eBay sellers), because our service is paid-for by the states to ensure minimal (if any) burden for retailers.  Given the availability of free service, can anyone tell us EXACTLY how they will be burdened?" - David Campbell (FedTax comment on this article on TNW) (emphasis added)

Campbell also sent a letter to the Governor of Maine, urging him to support the MFA. The letter contains a demonstrably false statement and Campbell appears to be purposely misleading the Governor.

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)

Many small business owners have told us that they have explained to Campbell via blog comments, email and even over the phone about how they will be burdened and that his software does not work with their systems. These small business owners believe Campbell is not concerned with understanding and solving the real (and very expensive) burdens they face but is instead concerned with pushing a personal profit-seeking agenda. Here are some of the problems with Campbell's statements above.

  • Integration of so-called "free" software is not free. In fact, as small businesses across America continually point out, implementation of sales tax software is often expensive and receiving even a single sales tax audit by any of the 46 states per year authorized by the MFA to audit remote sellers would be burdensome, time-consuming and expensive.  We estimate integration, compliance and remittance costs for small businesses impacted by MFA will be between $20,000 and $300,000 in the first year alone depending on the companies size, systems and product count and mix. These numbers are based on actual quotes from programmers and integration experts and also on real costs to integrate shopping carts, accounting systems, order management systems and other direct expenses associated with sales tax compliance under the MFA. In fact, our small businesses are so concerned about the costs of compliance that 30 of us recently flew to DC and met with members of Congress about the compliance costs. We're not the only ones sounding the warning bell. Accountants nationwide, including the well respected organization AAA-CPA, strongly oppose MFA because the costs will be significant and will harm small businesses.
  • TaxCloud and other web-based software solutions can't solve the problem the MFA introduces for thousands of catalog and mail order companies. Millions of Americans don't shop from a computer for various reasons - especially the elderly. The Marketplace Fairness Act could kill the catalog business and heap hardships on hundreds of thousands of American buyers, especially seniors, who shop from catalogs and send their payments via mail.
  • At the time of the hearing cited above, TaxCloud only integrated with six (out of hundreds) of shopping cart providers and didn't even integrate with any of the largest ecommerce solutions - Yahoo, eBay or Amazon. Campbell's statement is particularly concerning in light of these facts. And, as of today (August 5, 2013), as far as we can tell (according to their own partner page) they still don't integrate with many leading shopping cart solutions (still no support for Amazon or eBay and no direct integration with Yahoo). As far as we can tell they offer no solution for multi-channel sellers or for order management solutions. Moreover, there is no turn-key solution for all of the online stores that have custom carts - nor will there ever be.
  • At the time he sent the letter to the Governor of Maine, TaxCloud software wasn't (and still isn't) compatible with the great majority of shopping carts or order management systems on the market. In fact, at the time, as far as we can tell it wasn't compatible with any of the major order management systems.

Read more about David Campbell's statements on the Marketplace Fairness Act here. It's an enlightening piece that juxtaposes Campbell's own quotes about the MFA against TaxCloud's actual capabilities.

Now, let's look at a more recent op-ed by Campbell, titled "Internet sales tax is easy, because it's on the Internet" and some of his recent assertions. The title alone is problematic because the MFA isn't an Internet sales tax bill, it's a remote sales tax bill (use tax collection) which means it affects non-Internet sellers like catalog and mail order companies.  TaxCloud and other software providers don't have a solution for those types of remote sales. However, in his op-ed, Campbell says:

"An important part of the legislation that isn’t being discussed enough is that it requires states to provide free certified sales tax software for retailers. The cost to a store owner will be zero." - David Campbell (emphasis added)

This is not accurate.  Taxpayers pay to subsidize the cost of his software and store owners are taxpayers, too. Furthermore, even though taxpayers, including store owners, subsidize the licensing cost of his software, we (small businesses impacted by the law) would be forced to pay for all of the integration costs and maintenance of our systems. Per the actual text of the bill, this means that we may have to integrate our systems with up-to 25 different pieces of software - in addition to one certified solution like TaxCloud. Campbell has admitted this is possible, though he says that those who bring it up are "fear mongering" because he believes that scenario is "unlikely". We disagree.

Small business owners would also be responsible for manually categorizing our products and we would be subject to expensive and time-consuming audits. As many of us know intimately, sales tax audits are extremely invasive, time consuming and expensive - even when we've done nothing wrong. For Campbell to say the cost is "zero" to a business owner to comply with the MFA is to misrepresent the facts.

Campbell asserts that shopping cart providers will update their cart systems for sales tax calculation changes if the MFA passes. But if TaxCloud software doesn't work with those carts, that's irrelevant. And as we mentioned above, TaxCloud still doesn't support more than half of shopping cart systems including the three largest - Yahoo, eBay and Amazon. Plus, there is nothing in the MFA bill text that says that shopping cart providers have to update systems and integration at no charge to small businesses. They can charge for this "service" if they want to. Amazon charges a fee to sellers for sales tax calculation services already.  Other shopping cart providers can pass this integration cost on to small businesses, too. Ultimately, the onus, costs, responsibilities, and liabilities fall on our small businesses and they are not "zero". Far from it.

Let's look at another quote from his op-ed:

"Technology shouldn't be the issue here. Legislators in D.C. and around country can be comfortable knowing that online sales tax collection is not a technology concern; it’s a matter of public policy." - David Campbell

Actaully, technology is the issue. Under the MFA, FedTax and the other certified software providers would get taxpayer subsidies for the use of their technology and - according to their projections - they could make between $700M and $1.5B annually.  Campbell asserts on his blog that the MFA would allow the capture of $23 billion in tax revenue; the subsidy to the certified software providers by the states is reported to be 2-8% of tax revenue collected. However, we businesses owners would be forced to pay for the integration costs and bear the heavy burden of compliance.  We would be forced to take on inordinate risk associated with sales tax collection in 46 states.  In all but one of these states we'd have no physical presence, no political representation, and no voting rights.  And we, unlike David Campbell's company, would get no payments for this service to the states - no taxpayer subsidies - even though these costs will burden many of us and could put some of us out of business.

We are the people that would be forced to stagger under the burden and we're telling Campbell and other supporters of the MFA that - contrary to the statements by Campbell and others - compliance is not  free or easy. States are willing to have their taxpayers subsidize FedTax's business under the MFA, but won't give a dime for the businesses actually bearing all the risk and burden.  Why wouldn't they?  Likely because the states know, as the American Association of Attorney-Certified Public Accountants (AAA-CPA) noted in a letter to Congress, the cost of compliance foisted on small businesses like ours would be greater than the tax revenue generated by the law. The AAA-CPA would financially benefit from the law's passage, yet they have the integrity to assert that the compliance costs for remote sellers will be billions of dollars and cause great harm.  We applaud them for their integrity.

The AAA-CPA also opposes MFA because remote sellers could be audited by up to 46 states per year under the MFA. In many states, business owners and "responsible persons" within a company can be held personally liable for uncollected or over-collected sales taxes, even if it results from innocent mistakes and good-faith efforts. Passage of the MFA would mean that our personal possessions could be confiscated by a remote state's department of revenue.

What does David Campbell say about this audit risk the AAA-CPA has warned about and vehemently condemned?

On Practical Ecommerce he says his company will protect you from audits:

"Merchants who use our TaxCloud service for the participating Streamlined states receive indemnification against any  audits or penalties." - David Campbell (emphasis added)

In a recent comment on a The Next Web article Campbell continues to make similar claims:

"Given the availability of free service, can anyone tell us EXACTLY how they will be burdened? Before you start complaining about audits, you should know that TaxCloud defends audits as well, at no additional cost to retailers - audit defense is inherent in our service because we are certified by the states." - David Campbell (emphasis added)

FedTax makes similar claims in their marketing slideshows:

"States do not audit individual retailers, they audit us." - FedTax marketing slideshows

Notice he says remote sellers receive indemnification against "any audits or penalties". He claims that FedTax will provide "audit defense" and even goes so far as to say the states don't audit small businesses but rather audit FedTax. But are these statements factual? They seem to contradict the notices buried in the Terms of Use on his own website

"For TaxCloud Member States, FedTax will take audit responsibility and provide indemnification with regard to rate information." - TaxCloud TOS

So which is it? Does FedTax provide full indemnification against ANY audits and complete audit defense? Or do they simply provide indemnification with regard to rate information? This is a critical distinction and it makes all of the difference. A reading of the text of the Marketplace Fairness Act confirms that the bill only indemnifies remote sellers from errors made by the certified software provider's regarding rate information. There is no protection from categorization questions, problems with the integration with TaxCloud or other software solutions, or other anomalies.Is Campbell just overselling his company's ability or is he purposely misleading the public and media to help the passage of the MFA? What we do know is that under the MFA small business owners would be personally liable for errors not related to rate information and thus answerable to auditors from states where they have no physical presence, no voting rights and no political representation. No matter what David Campbell says or posts online, FedTax cannot change that fact.

We know first hand how burdensome and time consuming these sales tax audits are because many of us have gone through them, so this distinction is critical. FedTax and other software providers may provide proof to auditors that their software is calculating rates correctly, but we are ultimately still responsible for providing proof that all of our systems are working properly and that we categorized our products correctly.  Categorization compliance is nearly impossible for many remote sellers because of product ambiguation and the complex maze of categories and exemptions mandated by the various states.  We can be held personally liable for honest mistakes that result in under- or over-collection of sales taxes.

We've found other inconsistencies and what we believe are misrepresentations on FedTax's blog, which we may document in detail in future blog posts. One of the most egregious statements comes from a blog post titled Debunking 3 myths about internet sales tax

"Right now local stores have to collect sales tax while online stores don’t, which gives online stores the appearance of a price advantage of up to 10%. Even when bricks-and-mortar retailers also sell online, it doesn’t change the basic fact that in their local stores, they have to collect sales tax, while online stores don’t." - FedTax Blog

This is false.  Online stores collect and remit sales taxes in their home states just as local stores do.

Furthermore, online stores have to collect shipping costs and shipping costs are almost always more than sales tax costs, so there is no pricing advantage. In fact, most online retailers are more often than not at a pricing disadvantage.

Let's close, for now, with a final blog entry. In a recent blog post on the FedTax website, Campbell finally shares an opinion we can get behind.

"... we don’t think that anyone should have to spend money to collect sales tax, full stop." - FedTax Blog

We agree!  The money we'd have to spend to collect sales tax - software and systems integration and maintenance, product categorization, book-keeping, remittance and audit expenses - should not be required, "full stop".

So we'd like to pose a couple of questions to Mr. Campbell of FedTax, the maker of TaxCloud:

1. Do you stand behind your statement that "The cost to a store owner will be zero"? 2. If not, why not? 3. If so, will you agree to pay ALL of our system integration costs (cart systems, order management systems, accounting systems, etc.), maintenance costs, categorization costs and audit costs? 4. If not, please explain why not. 5. Wouldn't it be reasonable that you should have no problem with that arrangement as - by your own account - it would be "free" and "zero cost" for you to do so?

UPDATE: It get's worse. Read more about Tax Cloud's   misinformation campaign here. UPDATE 2: We added the quote from Campbell's letter to the Gov. of Maine above where we felt it was an appropriate addition. UPDATE 3: A new study released by TruST refutes Campbell's misleading claims about "free" software for every merchant. Read more.