Friday, July 13, 2018

US Supreme Court Sales Tax decision hurts small online businesses

The Supreme Court has ruled that US states can require online sellers to collect sales tax. However, the ruling could mean that the sellers need to collect sales taxes not just for their own state but for all the other states to which they sell.
A case study
Vince Kadlubek was originally happy enough when he heard of the Supreme Court ruling. He is CEO of the art collective Meow Wolf and his group brings in about $12 million a year with most coming for admissions to his New Mexico art attraction. He sells most of his admission tickets online. Kadlubek was fine with helping the state gain more revenue.
Then he heard that it could mean collecting sales tax revenue from other states as well. Kadlubek then said to NBC news: "This is going to be a headache. That makes me really think twice about whether or not we push online sales as a component of our company. I'd much rather have people buy their tickets at our front desk and keep the tax local." Perhaps, Kadlubek could simply limit online sales to residents of New Mexico.
It may be difficult and costly for Kadlubeck to comply as many states will demand that online sellers in other states collect sales tax from buyers in their states. The estimates of the amount of sales tax lost to sellers outside of a jurisdiction is from $8 billion to $33 a year according to the Supreme Court decision.
Reaction to the ruling is mixed
Companies with a physical retail presence in states have cheered the decision since before they were at a competitive disadvantage with online sellers. Tom McGee CEO of the International Council of Shopping Centers said: "We think this levels the playing field and promotes competition. We've been operating in a system where we've been at a competitive disadvantage."
States also will no doubt welcome the ruling as it should increase their revenues from sales taxes. It remains to be seen if the ruling has much of an effect on online sales. If people bought in stores they would have to pay the state tax anyway and it may be convenient and often cheaper still to buy online. However, some small businesses may decide there is too much hassle in collecting the tax and curtail their online operations.
The use tax
Many states have a use tax equivalent to the sales tax that applies to online purchases but most online businesses do not comply with it. Rocky Cummings of BDO the accounting, tax, and advisory firm said: "There was very little voluntary compliance with the use tax. If you have a million residents buying stuff online, you're not going to chase a million people. It's much easier to go after the seller to collect it all."
At most, the additional revenue will add 5 to 7 percent to annual revenue, according to John Mikesell, of Indiana University's School of Public and Environmental Affairs. However, it will be good for state budgets.
Big players will be affected
Large online sellers such as Amazon, Walmart, and Target frequently collect states taxes but not local taxes. The ruling opens the door to their having to worry about local taxes according to Mikesell. Yet large businesses have technical advantages that make the change much less burdensome for large businesses and so are comfortable with the change overall.
A statement from the large retailer Target said: "We are pleased the Court’s ruling will close the loophole that has allowed online-only retailers to avoid collecting and remitting sales taxes while still requiring local businesses to do so."
Small and medium size businesses are most negatively impacted
These business are faced with a huge problem because compliance is complicated. Darcy Kooiker of the national tax firm Ryan notes:. "Each state gets to determine whether the products, goods, and services sold by the sellers should be subject to that state's sales tax. Part of the biggest challenge for the sellers is to know in each particular state if its goods and services are subject to sales tax, because there's no uniform definition."
Some states have exemptions for collecting sales tax. In North Dakota for example a seller can sell up to $100,000 or 200 transactions with no tax.
Allen Walton CEO of , SpyGuy.com an online seller of security equipment complained: "This makes life very difficult for people like me. Now I have to keep track of the tax laws and collect and report tax in 50 states and over 3,000 counties."
Chris Cox, a lawyer for e-commerce industry group NetChoice, claimed that small businesses would be most affected: “Consumers will quickly feel the negative effects as those businesses dry up or are forced into the arms of Internet giants.”
Hart Posen an associate professor at the Wisconsin School of Business thinks that the decision can be a boon for Amazon. Many small online sellers may use Amazon's platform as it will collect and remit sales tax for them.
A number of states have already legislation that will trigger sales tax collection should the Supreme Court decision allow it, as it has. This means companies must comply right away or risk an audit and fines from different states. Forty five of the 50 states impose sales taxes.
The Supreme Court Decision
The ruling pitted several retailers against the state of South Dakota: "The justices, in a 5-4 ruling against Wayfair Inc., Overstock.com Inc. and Newegg Inc., overturned a 1992 Supreme Court precedent that had barred states from requiring businesses with no “physical presence” in that state, like out-of-state online retailers, to collect sales taxes."
The ruling authored by Justice Anthony Kennedy revived a 2016 law that required larger out-of-state e-commerce companies to collect sales tax a law that retailers fought in court. Kennedy said that rejecting the physical presence rule was needed to ensure that an artificial competitive advantage was not created by court precedents.
The ruling led to Wayfair stocks declining 3.8 percent while Overstock lost 2.1 percent. Even Amazon fell as much as 1.9 percent even though it may eventually benefit from the decision.


Previously published in Digital Journal

Thursday, July 12, 2018

Amazon workers protest sales of facial recognition software to the police

Workers at Amazon are demanding that the company cease selling facial recognition software to the U.S. government as it would be contributing tools that violate human rights.

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A letter to CEO Jeff Bezos cites recent mistreatment of refugees and immigrants by ICE as well as the targeting of black activists by law enforcement. The letter noted as a parallel IBM's sale of computer services to the Nazis: “As ethically concerned Amazonians, we demand a choice in what we build, and a say in how it is used. IBM did not take responsibility then, and by the time their role was understood, it was too late. We will not let that happen again.”
Amazon Web Services Rekognition and AWS cloud services

The workers said that Amazon Web Services Rekognition, the facial recognition software, should not be sold to law enforcement. The AWS cloud services should not be sold to Palantir. Palantir is a data analytics firm that provides mission critical software to Immigration and Customs Enforcement (ICE).
The sale of Rekognition software to the police was discovered by a American Civil Liberties Union (ACLU) investigation in May. The ACLU warned that the deployment of such technology could be the beginning of automated mass surveillance in the US.
Palantir has been working with ICE since 2014 when Obama was president. It helps the agency manage the mass of personal data needed to target and deport individuals. The letter makes particular reference to the separation of families at the US border as a prime motivation for their protest. The entire letter can be found here.
The letter says about Palantir: "We also know that Palantir runs on AWS. And we know that ICE relies on Palantir to power its detention and deportation programs. Along with much of the world we watched in horror recently as U.S. authorities tore children away from their parents. Since April 19, 2018 the Department of Homeland Security has sent nearly 2,000 children to mass detention centers. This treatment goes against U.N. Refugee Agency guidelines that say children have the right to remain united with their parents, and that asylum-seekers have a legal right to claim asylum. In the face of this immoral U.S. policy, and the U.S.’s increasingly inhumane treatment of refugees and immigrants beyond this specific policy, we are deeply concerned that Amazon is implicated, providing infrastructure and services that enable ICE and DHS."
We will have to wait and see whether the protests at Amazon will change policy but the trend is for tech workers to take an active stance when their companies engage in work which is questioned by many including employees.
The Amazon protest follows earlier ones at Google and Microsoft

In March, it was revealed that Silicon Valley workers were helping build AI tools to analyze drone surveillance footage. In response workers protested and more than a dozen even resigned. The protest was successful and Google pulled out of the contract and even pledged not to develop AI weapons.
Google had offered its resources to the US Department of Defense for Project Maven. This is a research initiative to develop computer vision algorithms that can analyze drone footage. More than 3,100 Google employees signed a letter asking Sundar Pichai the Google CEO to reevaluate the company's involvement. The letter said that Google should not be involved in the business of war.
Microsoft has attempted to downplay its work with ICE but this has not stopped internal dissent. More than 300 employees have signed a letter denouncing the campaign. Microsoft CEO Satya Nadella claims the company was only providing benign software for tasks such as messaging and email. It remains to be seen whether the protests will result in any change of policy.


Previously published in Digital Journal

US Supreme Court Sales Tax decision hurts small online businesses

The Supreme Court has ruled that US states can require online sellers to collect sales tax. However, the ruling could mean that the sellers...