Few pieces of legislation rile small business owners as much as the Marketplace Fairness Act of 2013. In essence, the bill requires online retailers to collect sales taxes from out-of-state customers, even if the retailers don’t have a physical presence in the customer’s state.
To date, shoppers have largely been spared online taxation from companies that don’t have physical operations or storefronts in their state. By and large, states that collect sales tax require their citizens to report un-taxed, out-of-state purchases. But as many dwindling state and local government coffers show, not all online shoppers are forthright about their online purchases, choosing instead to pocket the savings.
To remedy this, the Marketplace Fairness Act requires that online store owners collect the taxes that are owed the states in which their customers reside.
Calculating Taxes Under the Marketplace Fairness Act
The Marketplace Fairness Act is hardly taking anyone by surprise, says Ethan Giffin, CEO of Groove Commerce, an ecommerce specialist and provider of marketing and consulting services for website operators. In terms of online taxation, “something was inevitably going to happen in this space,” he told Small Business Computing.
“We knew this wouldn’t last forever,” he added. Marketplace Fairness Act of 2013 passed the Senate on May 6. Its future now hinges on the House of Representatives.
Small business owners aren’t up in arms about online taxation, for the most part, reported Giffin. Rather, they are concerned about the impact of its passage in its current form.
One of the biggest challenges small etailers would face is implementing a tax collection scheme. Giffin says that there are “9,000 sales-tax zones in the U.S.,” and in some states, “their sales tax can change by ZIP code.” Just figuring out what to charge their customers “may be nearly impossible for smaller online business,” said Giffin.
The Cost of Keeping Track
Another sticking point: administrative overhead.
“Most etailers aren’t concerned about collecting and charging the sales tax,” said Giffin. What worries them is that that the overhead “to administer this program could be more than the taxes.” The wording of the act also frightens people. Under the act, a state other than an etailer’s home state could summon an online seller for an audit if issues arise—a potentially costly process for small firms.
Finally, small business operators are leery about the amount of yearly sales—currently $1 million—that it takes to trigger online out-of-state tax collection. Many small businesses blow past the $1 million easily, said Giffin. “A million dollar etailer is not that large,” he adds.
So where does all of this leave online merchants? Basically it’s a game of wait and see—and don’t panic.
For his part, Giffin says Groove Commerce will serve its customers and the online retailing community by keeping a level head. “Our goal is to be a trusted advisor with our clients,” he said. “We’ll continue to monitor the status the bill and help our clients navigate these rocky waters.”
Pedro Hernandez is a contributing editor at Small Business Computing and InternetNews.com. Follow him on Twitter @ecoINSITE.
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