Small Business Websites
Lawmaker Aims to Simplify E-Commerce Sales Taxes
Written by Chris Martin for Gaebler Ventures
There is movement in Congress toward simplifying sales taxes schemes for e-commerce websites. That means your online business may soon have to charge sales taxes to all of its customers.
There are numerous advantages to being an online retailer.
You don't have to keep much (or any) inventory if you structure your company to take advantage of drop shipping. You can serve customers all over the world if you choose to do so. And you don't have to deal with the overhead that a traditional store would incur, such as property taxes, building maintenance, and utility bills.
And you also don't have to collect sales taxes on purchases of your items.
Unfortunately, that last advantage might soon be vanishing for good.
Massachusetts congressman Bill Delahunt has introduced a bill known as the Main Street Fairness Act of 2010. The name comes from complaints about an uneven playing field that have been proffered by brick-and-mortar storefronts for years. The legislation aims to standardize the sales tax process and apply it to all items bought online in the United States. The bill models itself after a scheme which is already in use by 23 states.
In the past, online retailers have adopted the position that it is practically impossible to assess and collect sales taxes accurately because of the huge diversity in laws and rates between cities, counties, and states. The Main Street Fairness Act was written with the goal of addressing that concern. It affixes standard tax rates for different categories of merchandise as opposed to focusing on where the goods are being shipped from or delivered to.
This shouldn't come as a major surprise to longtime online retailers. After all, governments are always looking for ways to collect more revenue; so in this regard, Rep. Delahunt is simply acting like the typical politician (though it should be noted that he has already announced that he will not run for reelection). And while the Internet has been skillfully monetized by entrepreneurs for years, it has not been as profitable for governmental entities.
Experts who have been monitoring the ecommerce industry could already see the writing on the wall. In recent years, online retailers have been employing a wide variety of stall tactics and legal maneuvering to ward off sales tax plan efforts. They've even resisted efforts to actually collect the sales taxes which municipalities have already implemented. One perfect example is Amazon's decision to unplug its affiliated marketers throughout the state of Colorado in order to bolster its claim that because it doesn't maintain a physical location in the state, it is not required to fork over sales taxes.
But it wouldn't be a stretch to predict that sales taxes for all online retailers will be a fact of life within the next decade. Even if the Main Street Fairness Act fails, about ten states are already taking steps to adapt the bill's structure to their own ecommerce laws. And with municipalities of all stripes suffering from budget deficits and lower overall revenues, politicians might be turning a deaf ear to those who are lobbying for the interests of online retailers.
So as an entrepreneur looking to ply your wares in cyberspace, you may have to begin adjusting your pricing structures (as well as the cost calculation software on your websites) to account for the addition of sales taxes. It's a tough pill to swallow, but all signs point to the inevitability of the end of tax-free ecommerce.
Chris Martin has been a professional writer for the last seven years. He is interested in franchises and equity acquisition.
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