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The Internet Taxman Cometh

Bill Britt

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By Bill Britt
Alabama Political Reporter

MONTGOMERY—In the sleepy hours of the 2012 Special Session of the Alabama Legislature, they passed the “Remote User Tax” that is designed to raise hundreds of millions of dollars by way of taxing internet sales.

Last week, as a part of his trip to Washington, DC, Governor Bentley met with Alabama’s GOP lawmakers to encourage them to support S. 1832, the Market Place Fairness Act.

The law would allow states to require out-of-state, online-only retailers to collect and remit sales taxes already owed but rarely paid on purchases by state residents.

In Congress, the Marketplace Fairness Act is co-sponsored by Representative Spencer Bachus, as of this report other Alabama legislators have not weighed in significantly on the issue.

Advocates of the act say these taxes are already owed but rarely paid on purchases by state residents. In Alabama, for years there has been a category on the state income tax form where an individual is suppose to list and pay taxes on purchases that are made out of state and brought back to Alabama for use. However, little money is ever realized by this method of tax collection.

However, under federal law, states cannot force out of state businesses to collect such taxes. Doing so is currently barred in the absence of congressional action under the Supreme Court’s Quill v. North Dakota decision.

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Exactly, how, when and why the obligation to collect sales tax falls to the seller is a vague and gray area.

Governor Bentley has been at the forefront of state leaders calling for the congress to enact Market Place Fairness Act. The governor find himself a the head of a list of well-known republicans including: Branstad (R-Iowa), Christie (R-N.J.), Daniels (R-Ind.), Haley (R- S.C.), Haslam (R-Tenn.), LePage (R-Maine), Sandoval (R-Nev.) and Snyder (R-Mich.), former Governors Haley Barbour (R-Miss.) and Jeb Bush (R-Fla.), Senators Alexander (R-Tenn.), Blunt (R-Mo.), Boozman (R-Ark.) and Corker (R-Tenn.).

Under Alabama’s “Remote User Tax” law passed in the 2012 legislative session, is a new category that would require business outside of Alabama to collect taxes on goods purchased from them and pay them to state and local governments. This is designed primarily to collect taxes from Internet purchases. State lawmakers, again say this is not a new tax but a way of collecting tax already owed.

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Critics disagree and see many fallacies related to the Marketplace Fairness Act (MFA).

Americans for Tax Reform says that the MPA is a direct threat to the principle of republican governance by the people, shifting the cost of government to non-residents. They also claim that the MFA pushes measures that dissolve the physical presence standard and have the potential to usher in the second coming of taxation without representation in America.

This is also echoed by the American Enterprise Institute who concludes that the MFA is a variation on a theme our ancestors called “taxation without representation” saying that states’ rights, like individual rights, must end where another’s rights begin.

As to the MFA or Alabama’s “Remote User Tax” is a new tax the Americans for Tax Reform, says this is a fundamental change in tax law and certainly a new form of taxation. Furthermore, for the numerous retailers who do not pass sales tax liability onto their consumers at the register, this legislation amounts to a new out-of-state tax that will come directly out of a business’s bottom line.

Semantics aside a individual in Alabama making a purchase on the Internet will certainly conclude that state lawmakers have instituted a new tax.

Forrester Research has said that the average U.S. online shopper will soon spend $1,700 annually, if this is true then Alabama’s online shopper can expect to pay around $170 a year in what the government says are not new taxes.

According to two recent studies it is estimated that in Alabama $211 million in state and local taxes could be collected from the internet sales tax. This is assuming a small-seller exemption of $500,000.

Using Alabama’s statutory formulas, this potential revenue would be divided in the following ways:

State Share (50 percent) $ 105,350,000
General Fund (75 percent) $79,012,500
Education Trust Fund (25 percent) $26,337,500
Municipal Share (25 percent) $52,175,000
County Share (25 percent) $52,175,000
This estimates if realized would certainly go along way to ending Alabama’s financial woes.

Under the MFA business with sales below $500,000 annually are exempt but even this provision has its critics.

A favorite of many Alabama conservatives, Senator Jim DeMint of South Carolina not long ago wrote in the “Wall Street Journal,” “At its core, this is a nationally mandated Internet sales tax on businesses. Once a single state demands these sales tax collections under the new law, businesses in every other state would be forced to comply with that state’s tax laws. Dozens of states are eagerly waiting to raise those taxes, as soon as Washington opens the floodgates.”

The burden on Internet entrepreneurs could be staggering. There are already nearly 10,000 state, local and municipal tax jurisdictions to navigate nationwide.

Just complying with a single state’s tax laws costs small businesses disproportionately more than larger firms that can afford accounting and technology teams to help them work through these arcane laws.

A 2006 PricewaterhouseCoopers study found that tax-compliance costs for small businesses (those having $1 million to $10 million in annual sales) are nearly 2.5 times greater than those of larger firms. For businesses under $1 million in sales, those costs explode to 16 cents on every dollar of revenue.”

Of course, the contra argument is made that since 1935 consumers have been required in most states to self track and remit use tax on their out-of-state purchases. Advocates of the remote tax law say nothing has changed that all purchases made on the Internet are taxable already. They argue that consumers cannot be trusted to pay the taxes owed so the tax must be collected by the seller as it is when purchasing from a brick and mortar store.

The conservative think tank Heritage Foundation said in April, “[T]here is no denying that businesses and individuals will pay more in taxes out of their pockets as a result of enactment of S. 1832. Indeed, that increase in what remote sellers will collect from businesses and individuals and remit to the state in tax revenues is precisely why many state governments want Congress to enact S. 1832.”

Bill Britt is editor-in-chief at the Alabama Political Reporter and host of The Voice of Alabama Politics. You can email him at [email protected] or follow him on Twitter.

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Congress

Voting rights activist calls for federal Department of Democracy

Micah Danney

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(VIA BLACK VOTERS MATTER)

The co-founder of an organization that is working to mobilize Black voters in Alabama and elsewhere used the 55th anniversary of the Voting Rights Act on Thursday to call for a new federal agency to protect voting rights nationwide.

LaTosha Brown, a Selma native who co-founded Black Voters Matter, issued a statement saying that it is time to reimagine American democracy.

“The Voting Rights Act should be reinstated, but only as a temporary measure. I want and deserve better, as do more than 300 million of my fellow Americans,” Brown said.

The U.S. Supreme Court invalidated a key provision of the law in a 5-4 ruling in 2013, eliminating federal oversight that required jurisdictions with a history of discrimination to get approval before they changed voting rules.

“To ensure that the Voter’s Bill of Rights is enforced, we need a federal agency at the cabinet level, just like the Department of Defense,” Brown said. “A Department of Democracy would actively look at the patchwork of election systems across the 50 states and territories. With federal oversight, our nation can finally fix the lack of state accountability that currently prevails for failure to ensure our democratic right to vote.”

She cited excessively long lines, poll site closings and voter ID laws in the recent primaries in Wisconsin, Georgia, Kentucky and Texas as voter suppression techniques that disproportionately affect Black and other communities of color.

Brown said that the July 17 passing of Rep. John Lewis, who was nearly killed marching for voting rights in Selma in 1965, has amplified calls for the Voting Rights Act to be strengthened. That’s the right direction, she said, but it isn’t enough.

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“History happens in cycles, and we are in a particularly intense one. We have been fighting for the soul of democracy, kicking and screaming and marching and protesting its erosion for decades,” Brown said.

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Congress

Negotiations on a bipartisan coronavirus relief bill appear to have broken down

Brandon Moseley

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The United States Capitol Building (STOCK PHOTO)

Both parties in Congress and the White House had hoped to have agreement on a bipartisan coronavirus relief bill; but those hopes appear to have been dashed after a later Thursday night meeting at the White House.

The Washington Post is reporting that the White House and Democrats failed to reach an agreement late Thursday night on the fifth virus relief bill. https://www.msn.com/en-us/news/politics/white-house-democrats-fail-to-reach-agreement-on-virus-relief-bill-and-next-steps-are-uncertain/ar-BB17E3po?ocid=msedgntp

White House officials and Democratic leaders ended a three-hour negotiation on Thursday with no agreement with both sides far apart on even basic issues.

Speaker of the House Nancy Pelosi (D-California) insists on a $3.4 trillion package. The White House wants a $1 trillion relief package.

“We’re still a considerable amount apart,” said White House Chief of Staff Mark Meadows after emerging from the meeting with Speaker Pelosi, Senate Minority Leader Chuck Schumer (D-New York) and Treasury Secretary Steven Mnuchin. President Trump was called into the meeting several times, but they were unable to resolve key issues.

Pelosi said that the meeting was “consequential,” but blamed Republicans for the breakdown in negotiations. “They didn’t take the virus seriously in the beginning, they’re not taking the consequences of the virus seriously at this time; and that’s why it’s hard to come to terms.”

Mnuchin said that if the administration decides today that further negotiations are futile, Trump would move ahead unilaterally with executive orders to address things like unemployment aid.

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Schumer said that that Democrats were “very disappointed” in how the meeting went and that any White House executive orders could be challenged in court.

Pelosi claimed that Meadows pounded the table at one point. Meadows denies the allegation.

“We are very far apart,” Pelosi said. “It’s most unfortunate.”

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Over 30 million unemployed Americans will see their unemployment checks dramatically cut next week without an extension of benefits. Pres. Trump has suggested that he could increase the benefits by executive action. Critics suggest that would be unconstitutional.

Democrats want about $1 trillion in aid for cities and states. Pres. Trump has dismissed that demand as a “bailout” for mismanaged states and has agreed to just $150 billion in aid for states.

Meadows said that the White House has agreed to go above $1 trillion; but that Democrats still have refused to go below $3.4 trillion. Democrats are also pushing for more money for food stamps, child care, and a U.S. Postal System bailout as part of the plan.

All of this would be paid with more deficit spending.

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Congress considers legislation to extend loan forgiveness to rural businesses

Brandon Moseley

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(STOCK PHOTO)

Congress is considering legislation to include loan forgiveness for rural businesses and communities. The Rural Equal Aid (REA) Act is a bipartisan measure led by U.S. Rep. Cindy Axne (D-Iowa). It will provide needed relief to entities with loans through the U.S. Department of Agriculture (USDA) Rural Development program.

Currently, only businesses with loans through the Small Business Administration (SBA) are eligible to have the principal, interest, and any associated fees owed on the covered loans for a six-month period forgiven. That was passed under the Coronavirus Aid, Relief and Economic Security (CARES) Act. Axne claims this leaves rural businesses out.

Under the new proposal, payment relief would extend to businesses with loans through the Rural Microentrepreneur Assistance Program (RMAP) and the Intermediary Relending Program, as well as loans made to public and nonprofit organizations for community facilities, and to businesses, cooperatives, and nonprofits expanding in rural areas.

Johnathan Hladik is the policy director for the Center for Rural Affairs. Hladik said that passage of the REA Act is crucial not only for the business and community entities involved, but also rural America.

“Expanding support to rural businesses will provide parity for rural communities that have been hit hard by the economic impacts of the coronavirus pandemic,” Hladik said. “These are the loans that keep Main Street vibrant, making it possible for small community financial institutions to grow local economies with local dollars.”

Cosponsors of the bill include: Reps. Lisa Blunt Rochester (D-Delaware), Jared Golden (D-Maine), Troy Balderson (R-Ohio), Austin Scott (R-Georgia) and Scott Tipton (R-Colorado). Senator Jon Tester (D-Montana) has introduced the companion bill in the Senate along with Sens. Angus King (I-Maine), Mitt Romney (R-Utah), Jeanne Shaheen (D-New Hampshire), Chris Coons (D-Delaware), and David Perdue (R-Georgia).

“Our rural businesses have been under the same burdens and weathering the same storm since the beginning of COVID-19,” Axne said. “It is only fair that we extend them the same provisions to sustain them through challenging economic times. I’m proud to lead this bipartisan group to unveil this legislation in both chambers of Congress this week, and I urge congressional leadership to include this commonsense measure in the discussions of the next round of essential COVID-19 aid.”

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“When Congress passed the CARES Act, we included provisions to reduce loan burdens for small businesses across the country,” said Sen. King. “This was the right move, but by excluding USDA Rural Development loans from the program, the effort left out many rural businesses that are feeling the same pain. Now, as Congress considers the next coronavirus relief package, we should extend these protections to ensure that our rural communities can access the same type of support as the rest of the country.”

“We have borrowers in rural Maine communities for whom the Rural Equal Aid Act will be a godsend,” said Laura Buxbaum, SVP, Policy and Resource Development, Coastal Enterprises, Inc. (CEI). “We know that they are struggling and will redirect their payments to cover loss of revenue and new opportunities that can help their businesses survive.”

Under REA Act the USDA would be required to issue loans similar to the SBA’s PPP program. These loans go through small community financial institutions and support local governments, Tribes, educational institutions, and small businesses to grow local economies with local dollars.

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Sponsors claim that providing these small businesses and community organizations with the same support given to SBA borrowers is critical to ensuring their survival going forward, and the health of our rural communities.

The Rural Equity Aid Act expands subsidies to the following USDA RD loan programs: Community Facilities – These loans are provided to public and nonprofit organizations for essential community facilities like hospitals, libraries, child care and community centers, and public facilities like fire stations or town halls; Business and Industry – These loans are provided to businesses, cooperatives, and nonprofits to develop and expand businesses in rural areas. Intermediary Relending Program (IRP) – These are loans of no more than $250,000 made through small local intermediaries to borrowers who are unable to get credit elsewhere, but need capital to get started or expand their business. These loans average less than $100,000 and support small local businesses. Rural Microentrepreneur Assistance Program (RMAP) – These are loans of no more than $50,000 made through local nonprofits. These loans are available to businesses with no more than 10 employees, making them a frequent choice for entrepreneurs looking for capital to start up a new business. In addition, RMAP loans are frequently used by women entrepreneurs.

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Elections

Alabama Forestry Association endorses Jerry Carl

Brandon Moseley

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Congressional candidate Jerry Carl.

Thursday, the Alabama Forestry Association announced its endorsement of Republican Jerry Carl for Alabama’s First Congressional District.

“Jerry Carl has experience working closely with the forest products industry in his role as County Commissioner and will carry that knowledge to Washington,” said AFA Executive Vice President Chris Isaacson. “Throughout his career, he has been a strong advocate for limited government and free markets and will continue to promote those same values in Congress. We are proud to endorse him.”

“I am thrilled to earn the endorsement of ForestPAC,” Carl said. “Alabama has a thriving network of hard working men and women in all aspects of the forestry community, and I look forward to being a strong, pro-business voice for them in Congress. As a lifelong businessman and an owner of timberland, I understand firsthand the needs and concerns of the forestry community, and I will be a tireless advocate in Washington for Alabama’s forest industry.”

Carl is a small businessman who has started over 10 small businesses in South Alabama, creating hundreds of jobs. He is currently serving on the Mobile County Commission.

Carl said that he was inspired to run for County Commission when he became frustrated with local government.

Jerry and his wife Tina have been married for 39 years. They have three children and two grandchildren.

Carl faces Democrat James Averhart in the November 3 general election. First Congressional District incumbent Bradley Byrne (R-Montrose) did not run for another term and has endorsed Carl.

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