Last week the US supreme court ruled that states are within their legal rights to collect sales tax when products are sold online, even when the business doesn’t have a presence in that state. The ruling is expected to be a significant revenue generator for many cash-strapped regions. Unfortunately, it’s also expected to be an enormous challenge for businesses – particularly small businesses – that sell over the internet.
The problems are already starting to be felt by some.
“This makes life very difficult for people like me,” Allen Walton, the CEO of SpyGuy.com, an online seller of security equipment, told NBC News. “Now I have to keep track of the tax laws and collect and report tax in 50 states and over 3,000 counties.”
He’s not kidding. With states looking to reap billions in potential tax revenues, online resellers may not only be forced to collect taxes from their customers across the country but to also file tax forms in states, counties and other local regions where business was transacted. Remember – each local jurisdiction has different rules, regulations and forms. This is not going to be an easy task for small merchants.
To be fair, the news is certainly encouraging for shopkeepers of bricks and mortar stores. For years, these business owners have complained that online sellers can offer lower costs because they don’t have to collect sales taxes. Now, the playing field has been levelled. Added tax revenues may also help fund better schools and infrastructure.
But the biggest winners from this decision are probably the large online shopping sites like Amazon and eBay. These companies have the infrastructure in place and many of their merchants, who are required to collect and remit local taxes, already use their services (at an added fee, of course). Other online sales and use tax filing services like Avalara and Vertex are also likely to reap the benefits of these looming requirements.
So what should a small online merchant do? To me, it may be time to bite the bullet and move to a larger, online platform. Or, at the very least, just wait and see. Many advocates are calling for further clarification of the ruling and are hoping that most states will exclude smaller online merchants from any potential new filings.
Regardless, it’s a good idea to plan for the worst if you’re selling products online.
That’s because, according to Digital Commerce 360, 15 states (Georgia, Tennessee, Indiana, Wyoming, Colorado, Alabama, Massachusetts, North Dakota, South Dakota, Illinois, Iowa, Connecticut, Hawaii, Kentucky and Vermont) either already have laws in effect or going into effect in 2019 to collect sales tax from online purchases that were, before the supreme court ruling, unenforceable. I think we’re just seeing the tip of the iceberg.
- Gene Marks is a columnist, author and small business owner. His company, the Marks Group PC, provides technology and financial management services to SMBs in the US and abroad
