Internet sales tax debate continues with small-business concerns
The debate over imposing Internet sales taxes has been a fairly ongoing one since the U.S. Senate passed the Marketplace Fairness Act back in May 2013. And yet again, the legislation, which grants states the authority to require retailers to collect sales tax for online transactions, is in the spotlight.
One of the major reasons that the Marketplace Fairness Act has been contested is the potential blow that it could impose on small business owners. The complexities of drawing sales tax from online shoppers located all over the nation are considered too much for mom-and-pop shops and the like who do not have the money or resources to manage the process.
“In the weeks leading up to the bill’s passage, critics warned it would pose an administrative nightmare for small online sellers, who would be forced to navigate the country’s 9,600 state and local taxing jurisdictions,” a Washington Post article cited. “Senators responded by including an exemption for firms with less than $1 million in annual sales.”
And it is that proposal that has the debate back in full swing. According to the Washington Post, analysis, conducted at the University of Tennessee, shows that the exemption would cut the additional revenue states could collect in half and that it would not solve the unfair playing field between online and brick-and-mortar retailers.
A quick retort to that idea includes the fact that brick-and-mortar stores must only deal with one tax law whereas online merchants would have to deal with thousands. Conversely, verbiage in the Marketplace Fairness Actaddresses the purported complexities by enforcing each state interested in joining to simplify their current sales tax laws. It calls for two options to do so:
Option 1: A state can join the twenty-four states that have already voluntarily adopted the simplification measures of the Streamlined Sales and Use Tax Agreement (SSUTA), which has been developed over the last eleven years by forty-four states and more than eighty-five businesses with the goal of making sales tax collection easy. Any state which is in compliance with the SSUTA and has achieved Full Member status as a SSUTA implementing state will have collection authority on the first day of the calendar quarter that is at least 90 days after enactment.
Option 2: Alternatively, states can meet essentially five simplification mandates listed in the bill. States that choose this option must agree to:
Notify retailers in advance of any rate changes within the state
Designate a single state organization to handle sales tax registrations, filings, and audits
Establish a uniform sales tax base for use throughout the state
Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there)
Provide free software for managing sales tax compliance, and hold retailers harmless for any errors that result from relying on state-provided systems and data
As of press time, there were a handful of U.S. states that required online sellers to collect sales tax – sometimes referred to as the Amazon Laws. To get an overview of which states are already on board, Avalara put together an interactive map that indicates participating states as well as quick facts related to that state’s laws. And, as a leader in cloud-based sales tax and compliance systems, Avalara offered up its expertise and laid out next steps a business can take to stay in compliance and avoid fines.
To stay on top of developments in the Internet sales tax legislation as well as all things related to the eCommerce industry, subscribe to the NetSphere Strategies blog. We’ll be sure to keep you in the know.
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