Retailers: Are You Ready for the Online Sales Tax?

Posted by in Retail


Just when you thought things couldn’t get any worse for online retailers, Congress recently sponsored legislation to tax online sales. If passed, the Marketplace Fairness Act would allow states to collect sales taxes on all goods bought online—except for retailers who collected less than $1 million in revenue. Online businesses were spared this tax grab when in 1992 the Supreme Court ruled that state tax laws placed too big a burden for online retailers to collect and remit sales taxes.
 
As it stands now, states can only tax Internet retailers if they are physically located within the state’s borders. Cash strapped states have sought relief in online sales taxes for some time, especially since Internet sales have jumped from 1.6 percent of U.S. retail sales to more than tripling at 5 percent. Even that number is expected to rise as shoppers go increasingly mobile, boosting hand-held impulse sales. According to the Commerce Department, third quarter 2012 online retail sales rose to $57 billion.
 
Taxing online sales could severely impact major retailers who have been growing increasingly dependent on web-based revenues. Large retailers insist that new systems and software would be needed to collect the tax-driven mandated surcharges; small retailers claim the sales tax will level the playing field.
 
"While store owners collect and remit state and local sales taxes, their digital competitors are off the hook—and benefiting because of it," said David French, the National Retail Federation's senior vice president for government relations. Arguing against the tax, a National Center for Policy Analysis report notes that “The software needed to comply with these thousands of tax rules barely exists, and is often faulty and expensive. The burden on small online retailers of complying with 50 state tax regimes is a de facto barrier to entry and gives local retailers an unfair advantage.”
 
The National Conference of State Legislatures has proposed two sales tax collection scenarios:

 

Destination-Based Tax
 
This would impose a destination-based tax collected by the seller, but be awarded to the state where the product is being sent. Online retailers would have to “verify buyers’ home sales tax rates, creating a two-tiered system in which businesses are treated differently based on their business model,” notes the NCPA.

 

Origin-Based Tax

This option would rely on an origin-based system that collects and pays sales taxes to the state where the online retailer is based. This is similar to the physical-presence standard currently in place and would be easier to implement. Such a system would make it easier for states with differing tax rates to compete.
 
Whichever option is finally enacted, retailers should be prepared to set aside monies for systems and software to implement the new online sales tax and to adjust product pricing to accommodate the changes. 

 

Image courtesy of renjith krishnan/FreeDigitalPhotos.net
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  • Suzanne T
    Suzanne T
    I am most definitely FOR sales tax being levied for on-line stores. Being a previous small business owner, brick and mortor, it is definitely an unfair advantage for those on-line entities to be exempt. It would also increase much needed revenue for the states.
  •  Shirley
    Shirley
    I believer the Original based tax should be charges to the retailer then passed to the customer.  This could help the debit we are now in.  Let everyone pay.  The on-line retailers are getting off easy.
  • Alex Kecskes
    Alex Kecskes
    Thanks for your comments. Agree, it's going to place an extra burden on online retailers, but politicians love a big "cash cow."
  • PAUL K
    PAUL K
    NO NEW TAXES! INSTEAD,DO AWAY WITH THE MONIES SPENT ON CONGRESSMEN AND SENATORS PAID TO THEM AFTER THEY NO LONGER SERVE AND DO EXEMPT THEM FROM THE HEALTH CARE SITUATION THAT THEREST O THE COUNTRY HAS TO ABIDE BY.
  • Lewis C
    Lewis C
    This is called"Marketplace Fairness", but most online purchases also require a shipping charge to be paid by the buyer. Brick and mortar stores get a free pass on that one, so they have no room to talk about unfair advantage due to no online sales tax.
  • Kevin K
    Kevin K
    It should be a Destination-Based Tax. Why should an out of state Retailer be able to sell their goods on-line into another state and not have to pay applicable state taxes? This is totally unfair to local Retailers.
  • Kathy A
    Kathy A
    What a bunch of crap! It won't be long til the politicians stifle all business in the US. Maybe they should learn to trim their budgets and save rather than tax,tax,taxing us everytime they need money.
  • George S
    George S
    This would be very costly as many states have multiple rates within their own borders by city and county.

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