Remember that old adage, “why buy the cow, if you can get the milk for free?” Well, as the country lurches further into an economic quagmire, the government in many states is suggesting that ecommerce and state sales tax would make a nice match. It’s been a free ride for too long, and now state governments are feeling wronged. It’s not just the state governments that are feeling robbed of billions in taxes, but bricks and mortar businesses don’t see why ecommerce merchants get such a tax advantage over those who actually build or lease, hire in-state employees, pay property taxes, etc. in the states where they do business.
One of the long standing perks of running an ecommerce operation was that ecommerce merchants could sell to anyone in the U.S., without having to bother with charging customers a state sales tax, with the exception of those buying from the state from which the ecommerce company is registered and physically located. That doesn’t mean ecommerce customers aren’t required to pay taxes, only that ecommerce merchants aren’t responsible for collecting them from out of state buyers. But now with Amazon at the front of the “shot gun marriage line,” all of that seems to be about to change. Here’s one article of many on the recent Amazon vs. state sales tax developments: Amazon deal with Legislature a ‘classic compromise’ via L.A. Times. This will be one of the largest paradigm shifts for ecommerce since PCI compliance. For some merchants, especially the smaller ones, such a system change will create a giant hurdle for new and existing ecommerce merchants alike.
Many will have no pity for merchants who haven’t been paying their taxes, but tax negligence isn’t at the heart of the feud. The real threat to being forced into keeping up with customer sales tax obligations is in managing the whole affair, which can be exceedingly complex. Sure, systems can be upgraded and modified at the online payment stage to include a state tax collections option for whichever state the customer is ordering from, but it’s the following tax filing paperwork that would prove most burdensome to merchants. Until the rules change, ecommerce merchants are required to file taxes in the state where they have operations, but under a fifty state tax compliance mandate, that tax filing paper work would be multiplied by 50, or more! Why more? State taxes isn’t standardized across the board, and may in some cases come down to what county a customer is from.
On top of the normal paperwork to be completed for all 50 states, there would also be questions of how customer and system errors over a span of 50 states might affect your business. Larger merchants like Amazon will be able to create additional departments to handle the paperwork overflow, but such a move may just dissuade small business merchants from going online at all. And no matter how large or small the ecommerce merchant, the thought of a state tax audit from more than one or two states at a time feels like a cold-steel, hair-trigger double barrel pressing into the back.
How would a state sales tax collection law for ecommerce merchants affect your business?
