Small businesses are an integral part of the United States economy. Recent studies indicate that more than half of US consumers prefer to shop online, with that percentage expected to increase. The rise in online commerce has prompted some business and government groups to lobby for further development of sales taxes on online purchases.
Those interested in expanding online taxes see it as a way to level the playing field for businesses that rely on traditional offline or “brick-and-mortar” sales that are required to charge their customers sales taxes.
Products sold in traditional brick-and-mortar stores tend to be more expensive when compared to online purchases. Additionally, various local, state, and federal governments are eager to reap the benefits of the additional revenue created by online taxation.
Any increases in online taxes will require e-commerce businesses to make changes in their business banking and accounting practices.
Current Online Sales Taxes
Current federal law only requires businesses to collect a sales tax when they have a physical presence in the state where the purchaser lives. Advocates of expanding online sales taxes suggest that state governments stand to potentially gain in excess of ten billion dollars in annual tax revenue under proposed tax changes.
The state of California has been on the forefront of expansions in online sales taxes, requiring all online businesses that sell in excess of one million dollars annually to Californians to collect sales taxes from all California residents.
Proposed Changes to Online Sales Taxes
The United States Senate recently voted in favor of an amendment in the 2014 national budget that supports the expansion of online sales taxes. This amendment is non-binding, meaning that it is effectively a symbolic vote and has no real legal backing.
The fact that the amendment passed the senate with a bi-partisan majority suggests that future congressional bills that expand online taxation have a strong chance of passing both the House and the Senate.
The centerpiece of the online taxation movement is the pending Marketplace Fairness Act of 2013 (MFA) bill. The MFA has passed the senate with bi-partisan support and is expected to pass the House in some form.
The current bill would require states to either join multi-state agreements on online taxation or to match state their tax codes to current multi-state tax rules. The bill will also require states to provide free tax collection software to online businesses. Similarly to California online tax laws, businesses that sell less than a million dollars online are exempt from the MFA.
How the Marketplace Fairness Act Will Affect Business Banking
One of the major concerns for E-commerce businesses is that the WFA will create a complex taxation system due to the significant differences that exist in tax codes between various state and local governments; some 45 states have different tax codes.
For example, a product that is a tax-free purchase in one city or state may be taxable in another, creating a potentially confusing tax collection process. Businesses will likely have to extend their legal and accounting departments as a result, as well as adapting their business banking procedures to adjust to the new tax revenue collection.
Perhaps the most significant fear of all for e-commerce business is the fact that some polls and consumer studies indicate that additional online taxes will produce a noticeable decline in consumer online purchases. A significant decline in sales revenue has the potential to alter available capital, debt structure, and more.
The effects of the MFA on businesses won’t be clear until a version of the bill is passed, but nearly all involved are certain that there will be a significant amount of changes.
Article courtesy of Charlie McCartney of The Marketing Robot. Follow him on Twitter @robthemarketer or read his blog for more information on marketing and small business best practices.
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