Internet Tax Bill Could Flood 15,000 New Tax Jurisdictions onto Small Business Owners

While there is no doubt that we live in a digital world, there are still quite a few people that haven’t gotten the memo. While it might seem that everyone you know has a smartphone in their pocket, a recent study by comScore showed that less than 30% of the US population has a smartphone.  And while you can buy everything from a new refrigerator to the groceries that go in it online, e-commerce retail sales still only account for less than 10% of all retail sales in the US.

That said, brick and mortar retail stores see online shopping as a huge threat, and are taking their fight to congress…again. 

A couple of years ago the state of California passed a law requiring the collection of sales taxes by e-commerce retailers based in the state of California.  The result of that decision was that big online retailers like Amazon immediately cut ties with all California based affiliates. The State eventually reached a compromise with Amazon, delaying the inevitable, and allowing California based online retailers to continue doing business through Amazon without having to collect sales taxes.

The issue has resurfaced in recent weeks - this time with national implications. A bill is circulating through Congress that would require all online retailers to collect sales tax on all purchases.  To further complicate things, the tax that would be charged would be based on where the purchase is being shipped to, rather than based on where the e-commerce company is located.

Surprisingly, Amazon is completely supporting the new bill, which appears to e a total 180 from their position two years ago.  Why exactly they have decided to do this is a completely different blog post.  For now, if this bill becomes a law, any company that offers national shipping would have to calculate sales taxes for nearly 15,000 different jurisdictions across the United States. Yes, 15 THOUSAND.

Needless to say, for smaller businesses, this would be nearly impossible to manage on their own.  There are tax software programs like Avalara Avatax, designed specifically to manage this particular aspect of running a business, but that might not be enough to keep small operations above water.

Even with the benefit of sales tax software, it may be difficult for smaller businesses to survive if the competitive price advantage offered online is lost. As expected, brick and mortar stores are all in favor of the proposed bill, saying the current loophole that online retailers are using to avoid charging sales tax gives them an unfair competitive advantage.

It is estimated that state economies lose out on a combined $23 billion in sales tax revenues not collected — half of which is directly lost through online purchases that aren’t taxed. Obviously, given the current economic climate, cash strapped states are trying to capture any revenue slipping through their nets.  What sort of impact that has on small businesses with an online presence only remains to be seen.