An online sales tax would kill small businesses jobs

By Lance Trebesch
May 9, 2013

Harlowton, Montana (population 984), is home to TicketPrinting.com, where we create tens of thousands of tickets a day for hundreds of customers across America. Like millions of small businesses around the country, our company leverages the power of the Internet to transcend location and do business on a national level. But our small business, like millions of others, is threatened by the Internet sales tax bill under consideration by Congress.

The legislation, which passed the Senate and now awaits action in the House of Representatives, claims to eliminate an unfair advantage for those who do business online. Instead, its effect will be to reduce e-commerce overall.

Currently, every person in America has the opportunity to do business on the Web. If the current Internet sales tax bill passes, this opportunity will be denied to many entrepreneurs and small business owners.

Small business accounts for more than half of all sales and jobs in the United States. While big business slashed employee rosters, small business created 66 percent of all net new jobs since the 1970s and more than 8 million new jobs since 1990, according to the Small Business Administration, a federal agency. Small businesses keep our economy growing, and Internet opportunities encourage small business, allowing almost anyone to pursue the American dream by reaching beyond a local market to do business on a national level and in the process create jobs.

An Internet sales tax that isn’t one rate, with one filing, accountable to one government agency, will kill this dream.

This legislation would conscript every small business with a website, requiring them to collect taxes for more than 9,600 sales tax jurisdictions and 45 states. It would do so with zero restrictions on the states and zero protections for small businesses.

This is a job killer for small businesses like mine. Internet sales have offered small business owners like me a chance to develop innovative business models. Being less dependent on my local market meant I could build my business, create more jobs and find long-term success. Hiring accountants and lawyers to deal with new regulations means the opposite.

But if small businesses are required to collect Internet sales taxes for remote jurisdictions, the cost and the risk will be too high for millions. The cost will be too high to set up a website, to comply with the legislation and to face the real risk of being audited by scores of state tax collectors. The Internet – for all businesses – has been this country’s innovation engine. Soon, the price of innovation may become too high.

Filing tax returns is costly and time consuming. The proposed Internet sales tax will necessitate my filing up to 45 returns a month, more than 500 a year. Each state has different filing laws and procedures. Needless to say, my risk of audit (along with the risk of lawsuit and bank account seizure by aggressive out-of-state tax agents) will increase 45 times. I’ll have to hire one to two full-time bookkeepers, plus an outside CPA. I’ll have to implement software (which is not guaranteed for accuracy or protection from audits) costing me tens of thousands of dollars, maybe more, and devote extra days each month to additional paperwork, communications and hassles with 45 state tax departments.

From this perspective, creating e-commerce websites – making our small businesses stronger ‑ is a lot less attractive. Do I still stand to gain by serving customers outside my state? This legislation puts me and millions of other small business owners at risk. Compliance costs, along with the costs of accounting and auditing, will cut growth investment. The result will be a less robust market and the death of many small businesses. In addition, consumers will have fewer choices and higher taxes.

Regardless of how you feel about an Internet sales tax in principle, this bill is deeply flawed ‑ yet another unfunded mandate from Congress, with broad language that offers no concession to or protection of small business owners across America.

The proposed Internet sales tax levies a toll on e-commerce, marooning small businesses in their local markets if they lack the time or funds, or simply cannot afford the risk of compliance. In the age of the Internet, it represents an enormous dinosaur step backward for small business growth, jobs creation and the economy.

As our economy’s job engine for the last 40 years, small business gets a lot of lip service from politicians. But if Congress and state governments truly cared about small businesses, they would let this Internet sales tax die a quick death before it derails thousands of businesses, if not the economy, and instead focus on ways they can help small business continue to be the net creator of jobs in America.

448 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

As a fellow owner of a small Internet business, I could not agree more. Please take a moment to review our position in this petition: http://www.ipetitions.com/petition/stop- internet-sales-tax-legislation/

Posted by OnlineRetail | Report as abusive

I’d like to address your concerns from a technology standpoint. As the CEO of sales tax management service, I’ve been deeply involved in online sales tax for years, and I can tell you that it’s much easier than you think.

First, collecting sales tax online doesn’t need to cost you anything at all. The Marketplace Fairness Act requires states to provide sales tax software and services to retailers for free. So you shouldn’t have any compliance costs at all.

Second, sales tax management services handle not just calculation but also filing, exemptions, sales tax holidays, and more. You don’t need to devote any time to dealing with this; it’s all automated. And it makes absolutely no difference how many tax jurisdictions there are—96, 9600, or 96,000, the software works the exact same way.

Third, certified sales tax management services actually do offer guarantees of accuracy. As long as the service is state-certified, users are indemnified in the event of any errors.

Finally, although this isn’t strictly about the technology, I’d like to point out that there are restrictions on states and protections for small businesses. The bill requires states to simplify their sales tax laws in specific ways before they can require online businesses to collect sales tax. And it also exempts all small businesses with less than $1 million in out-of-state sales.

Posted by fedtax | Report as abusive

What a load. I can go into my web site admin console and enable sales tax collection nationwide within a few minutes. I don’t think states want to ask me to collect sales tax for another state, if we have NO PRESENCE in that state. It’s about being competitive with brick-and-mortar stores where online sellers have an advantage.

Still, I’ve been retailing successfully online since 1996 and I’d like to pay no sales tax anywhere. Then again, people in hell want ice water.

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