A law is currently before Congress called the Marketplace Fairness Act that would effectively establish an Internet sales tax that would require online retailers and small businesses to start collecting sales tax upfront. In addition, these companies would be forced to differentiate between the different tax rates of various states and send those payments to local governments across the country. The law would apply to those online sellers that have a total annual sales of at least $1 million. Many small online retailers are responding to this concerning the costs that complying with this type of tax would incur.
Many small business owners feel that the logistics of this could be a potential nightmare. With only 4 states that don’t collect sales tax, this means that owners would not only have to track the taxes but cut quarterly checks to 46 states. One small business owner, Jim Krauss of Garage Flooring in Grand Junction, Colorado, estimates that if the law passes, he will have to update his accounting software, hire a computer programmer to update his virtual shopping cart system, and then use precious resources to keep up with the inevitable stream of paperwork that all these taxes entail, not to mention the additional staff required to manage the operation. According to Krauss’s estimates, the initial investment itself could cost him around $40,000.
While the bill does make some accommodations for small business owners, such as a provision that says that states must provide tax free software, most online retailers doubt that the software will be compatible with the various digital shopping carts out there. This might especially be an issue for those companies that use proprietary software that’s been specifically customized for their company. In addition, the bill provides protection from audits if the online retailers use the free government software that’s been provided. But this will not be beneficial to those business that don’t believe they’ll be able to use the software due to compatibility issues.
Proponents of the bill assert that the required tax will level the playing field between brick and mortar stores and online retailers. But many small business owners and small business supporters are worried that, despite the provisions that have been written in, many smaller online shops won’t be able to bear the cost of compliance. According to a study by Amazon, there are around 7,500 business that would be affected by this law.
Pagliery, Jose. “Online Retailers Call Internet Sales Tax a ‘Nightmare.’” CNNMoney. 5/8/13.