A set of three bills, expected to be passed by Congress after the upcoming presidential election, will end the lack of state tax collection by online retailers. There is strong bipartisan support for streamlining the online sales tax system via the Marketplace Fairness Act, the Marketplace Equity Act, and the Main Street Fairness Act.
The core issue that these bills address is the perception that pure online retailers, such as Amazon.com, have an unfair advantage over their brick-and-mortar competitors because they haven’t been required to charge state sales tax. In an economy where many consumers are pinching their pennies tighter than ever, no state sales tax can be a significant selling point for a business.
Small business owners, especially those who operate from brick-and-mortar locations, have long bemoaned the overly complicated and unbalanced state sales tax system–a system which currently consists of over 9,600 jurisdictions. Danny Givens, owner of Lynchburg, Virginia retailer Givens Books and Little Dickens Toys, says “It only makes sense to force all online retailers to basically pay their share in the game. We sell goods online, too, and yet it’s a disadvantage for brick-and-mortar stores like us when Amazon doesn’t collect taxes.”
Scott Smith, a tax attorney with Baker Donelson, also believes that nationwide online state sales taxes “will remove the competitive advantage pure online retailers have held.” Some companies, most notably Amazon, have begun voluntarily collecting taxes, but the passing of the Marketplace Fairness, Marketplace Equity, and Main Street Fairness acts would certainly expedite the standardization process.
While these bills would seem to benefit small business owners by helping them compete with larger online brands, many small businesses also operate partially or entirely through the internet. Because of this, the bills include exemptions for small businesses that make less than $500,000 per year. According to David Campbell, CEO of TaxCloud, these businesses will not have to collect sales tax.
Presumably, small businesses with annual sales exceeding the $500,000 mark will be just as responsible for collecting sales tax as mega-retailers like Amazon. Such a strict divide between exemption and liability means “Smaller operators are most likely to be hurt,” according to Northeastern University marketing professor Bruce Clark. “Large organizations have the resources to comply with regulatory burdens, even if they don’t like them,” says Clark.
Ultimately, the proposed overhaul of online sales tax collection would level the playing field for businesses and consumers alike.
Carlozo, Lou. “What the End of Tax-Free Online Shopping Means for Small Businesses” Reuters, 10/8/12.