The Marketplace Fairness Act, which could force many more business owners to collect sales tax on online purchases, recently passed the U.S. Senate. However, the legislation faces an uncertain future as lawmakers in the House of Representatives voice concerns about the bill.
The Intuit Small Business Blog asked small-business owners, attorneys, and CPAs what challenges and opportunities they foresee if an internet sales tax takes effect.
Baltimore attorney Dondi West doesn’t think the bulk of small businesses will be affected.
“Many small businesses won’t be affected by the proposed internet sales-tax legislation,” he explains. “Small businesses who sell products online are unlikely to be impacted, because there is an exemption for those online retailers who have less than $1 million of revenue per year.”
Emily Worden owns two e-commerce businesses, eThreads.com and Ferocious Friends. She’s concerned that she’ll have to prepare tax payments not only for her home state of Massachusetts, but also for 49 other states.
“I have to manually identify Massachusetts orders and pull them from the system for reporting tax,” Worden says. “Between three different payment gateways and two businesses, figuring out tax for one state can take up to two days each quarter. I fear how much time it will take to filter sales through all 50 states and follow up with tax filings for each state.”
John Burger, owner of Playfully Ever After, agrees. “It currently takes me about 40 minutes to pay my sales tax for Texas. I have to pull my sales tax data, review it, go to the Texas comptroller website, log in, and pay my monthly sales tax. Imagine that times 50! That’s 30-plus hours of labor.”
Burger hopes that if the law passes, the federal government will provide assistance. “Make it so I only have to go to one web portal, enter the sales tax for each state, and click to make a payment.”
Mike Poller, owner of Poller & Jordan Advertising, wonders how he’ll handle state sales-tax breaks. “Here in Florida, we have a sales tax holiday for back-to-school items. Will I have to keep track of 50 potential sales tax holidays from coast to coast, too?”
Vladimir Gendelman, owner of Company Folders, says that he may split up his business to avoid exceeding the $1 million sales cap.
“Our current strategy is to break up our business into multiple companies,” Gendelman says. “This way, no single company we own will earn more than $1 million annually for online sales, and we won’t be forced to comply with the new bill.
Shannon Etnyre, who owns True North Creative Business Planning, wants business owners to use this as an opportunity.
“If you’re creative, you can use the tax change as a promotional tool.” She advises owners to put together a “we’ll pay your sales tax” campaign. Promote higher-margin products more aggressively to pay for the tax.
Other owners advise using the $1 million threshold as an advantage: Smaller businesses can advertise that they won’t add sales tax to purchases. You can’t tell customers that the purchase is “tax-free,” but you can say the price the customer will pay upfront will not include the tax.
The bill is not expected to pass in its current form, but the business owners we spoke with believe that a national internet-sales tax in some form will inevitably become law.