Online Sales Tax: What Does the Newest Online Tax Proposal Mean for Internet Retailers?

online sales tax

Internet sales tax has always been a contentious issue for both online shoppers and merchants.

For years, both groups have fought attempts to impose state and local sales taxes on their businesses. So far, the industry has been successful at staving off attempts to charge these taxes. While most online stores charge taxes on sales made within their own states, there hasn’t been a charge for sales made across state lines. Last month, a bill was introduced that would change all of that.

The Online Sales Tax Bill

According to the Washington Post, this bill – if passed by both houses of Congress – would force online retailers over a certain size to collect tax for municipalities all over the country and remit them to the relevant authorities. This requirement wouldn’t just apply to state tax. It would also apply to city, county, township and other municipal tax. As it is currently written, businesses with over $ 1 million worth of sales per year would be subject to the law.

As is usual when Internet sales tax legislation is proposed, proponents say that this will help level the playing field between local businesses and those that operate online. Even though sales tax is supposed to be paid on all relevant purchases, most online orders are effectively tax-free, says Washington Post’s Brad Plumer. In fact, many buyers don’t realize that they are supposed to remit the tax to their local authorities when they order items over the Internet. Supposedly, this costs states and local municipalities about $11 billion a year in lost taxes.

Opponents of this legislation are quick to note that trying to collect all of these different taxes would be a ridiculous burden on retailers. According to an editorial in The Wall Street Journal, there are about 9600 tax collecting authorities in the United States. Trying to keep track of all those different taxation requirements would be more than a slight burden. In fact, it is reasonable to assume that most small businesses would not be able to do sales tax

Raise the Limit?

Some may think that a business that makes over $1 million a year in sales would have no trouble meeting the mandates of the proposed legislation. EBay, on the other hand, believes that this limit is far too low. It believes that the limit should be raised to $10 million a year in sales. Sales, after all, are not synonymous with profits. Ebay has such a strong opinion on this issue that it has set up a site to encourage people to write their representatives and urge them to vote against the bill.

What This Means for Business Owners

If the legislation passes in both the Senate and the House, it would cost the online industry far more than a few pennies of tax per dollar. To have a realistic chance at complying with such regulations, businesses of all sizes would have to buy and install complex address validation software, including a package to ensure that everyone is charged the correct tax, and send out up to 9600 checks every year – one for each taxing authority in America. While this may not be a problem for the likes of Amazon, which – according to eBay’s John Donahue – sells $10 million worth of products every 10 minutes, it would be a huge burden for the small companies that make up the majority of online retailers. Therefore, it’s no wonder that small businesses and companies that cater to them are strongly against this bill.