For years ecommerce merchants, especially larger ones like Amazon.com, have been hassled by a growing number of states in the USA about charging sales tax on purchases by customers located in states where merchants aren’t physically located. However, just because ecommerce merchants have been hassled to set up a system that will add state taxes to the purchase price doesn’t mean they’ve complied. North Carolina went so far as to subpena Amazon for customer records (and lost), so they could take the reins themselves to tax customers. Amazon has historically fought vigorously against being forced to apply state sales tax to purchases made by customers ordering from states in which Amazon is not physically located.
However, in a radical turn of events, as reported by the Seattle Times, Amazon Supports Senate’s Online Sales-Tax Plan:
Amazon itself blessed that notion Wednesday by throwing “strong support” to a new Senate bill that would allow states to compel online vendors to collect sales taxes. It was the Seattle-based Internet retailer’s clearest endorsement of the federal legislation, and a stark contrast to its sometimes-combative opposition to attempts by individual states to require the same thing.
In these economic hard times, U.S. states are doing everything they can just to keep police on the beat, teachers in the classrooms, and roads from disrepair. Under this “new state tax law for ecommerce merchants,” states could pull in 23 billion a year in previously uncollected online sales taxes.
Online retailers, like EBay, opposed the bill, indicating that smaller retailers could lose their advantage to the larger ones.
Though smaller ecommerce merchants might breathe easier, with the fact that under this bill, merchants making less than 500k in annual sales will be exempt. However, one has to consider that 500k in annual sales doesn’t begin to define the small businesses active in online retail. According to the SBA, for retailers to be considered a small business concern, they can’t exceed 5-21 million in annual receipts. So the e-merchants, who would be exempt from charging customers state sales taxes in states other than the ones merchants are physically located, represent the very small businesses out there. This leaves normal-sized small business retailers to deal with this pending challenge, with much less capacity than retailers like Amazon (which can create massive departments and programs, almost overnight, to handle this sort of inconvenience).
The real hurdle may not be in worrying over how increasing total product price will affect consumer behavior, but in creating configurators around the new regulations, and dealing with the extra paperwork headaches. Hopefully for those small businesses on third-party managed platforms, there will be a timely update to activate, when and if the law passes. For merchants flying solo on their own platforms, there may be more brow-creasing and boot-shaking to come, if this law comes closer to actually passing (with 23 billion on the line for struggling state governments, the passing of this tax law or another one like it seems inevitable).
As an ecommerce merchant, how are you preparing for the state tax bill to pass?
