IMGCAP(1)]A new bill making its way through Congress has the potential to change the world of e-commerce quite drastically and hurt the viability of small businesses across the country to compete in a growing sector of our economy.
Currently, online sellers are required to charge sales tax when the end customer resides in a state in which the retailer has a physical presence, or “nexus.” The Marketplace Fairness Act aims to change that. If passed, this law would require online sellers to charge sales tax regardless of where they have a physical presence.
Supporters of this bill are working under the premise that virtual e-commerce retailers, like Amazon, have an unfair advantage over local mom-and-pop shops because they can sell products in many states without charging sales tax. (Technically, the end customers are supposed to report and pay “use tax” on these items, but less than 1 percent actually do.)
What this argument misses is that there are millions of small businesses that sell on these major e-commerce Web sites, in addition their own Web sites. It certainly is fair to require them to charge sales tax in their own state, just as small businesses on Main Street are required to do. What isn’t fair is to make them manage, track, collect and then remit sales tax for thousands of local jurisdictions that have different rules and regulations. A business on Main Street can easily manage its sales tax because it only needs to learn the local regulations. But an online small business would have tens of thousands of different rates that they might need to charge depending on the jurisdiction of the buyer and what they bought.
At Outright, the small business accounting software company for which I am CEO, we understand that states are losing sales tax revenue as more commerce moves online. This needs to be resolved. At the same time, our hearts and minds are with the small business owner. We know how dedicated they are and how hard they work, regardless of whether they are an online or offline business.
Our primary concern is that these proposed changes would create more overhead for the small business owner. They are already the ones carrying the highest relative time burden of tax compliance. Why make that significantly worse? And how far should this new law go to ensure fairness? For example, should the new law apply new sales tax regulations to all mail order sales obtained via phone?
I talk to small businesses all the time. They are passionate, courageous and extremely hard working. They've got everything invested in their business. They are more than willing to pay their fare share to Uncle Sam. They just want some common sense applied.
The Marketplace Fairness Act as proposed has some good principles that must be adhered to as the bill gets debated:
1. Simplification of cross-state sales tax rates. This could be done in a variety of ways, such as having one rate per state or one rate for all cross-state commerce. This would keep the collection, tracking and remittance effort simple for small businesses.
2. Set a minimum revenue threshold of $500,000 for applying the new sales tax rates so that the smallest of businesses are exempt. They are doing everything they can to survive. Their cumulative incremental state revenue added from sales tax is insignificant, and the incremental burden to them is tremendous. This exemption is already included in the proposal on the table.
Regardless of the different perspectives on this issue, Outright believes all parties should have a common goal: Make things fair for all small businesses by requiring offline and online businesses to charge sales tax. Create a simplified way for small online businesses to calculate and collect sales tax. Exempt the smallest of the small businesses from collecting these taxes.
Small business owners are the heart and soul of the American economy. Let’s create the right conditions in this country for them to succeed and achieve the American Dream.
Steven Aldrich is the CEO of Outright, an online accounting system that automatically brings all sales and expenses together in one place. He joined the Outright team in 2011 and previously was the CEO of Posit Science from 2008-2011, before which he was a lead-man at Intuit. Outside of Outright, he is president of the board of the Bay Area Glass Institute (www.BAGI.org), a nonprofit glass studio.
