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Online sales tax divides small businesses


By J.D. Harrison - WASHINGTON POST


A legislative proposal to allow states to collect online sales tax has divided policymakers and small-business owners, but that hasn’t slowed its momentum on Capitol Hill.

The Marketplace Fairness Act would give states the authority to tax merchants from anywhere in the country that sell to customers inside their borders, be it through phone orders, catalogs or the Internet. The Senate could take up the measure today, less than three weeks after the latest version of the bill was introduced.

The legislation is intended to level the playing field for brick-and-mortar retailers while delivering additional revenue to state and local governments. It potentially poses major challenges for online merchants, who would be forced to start charging various tax rates for customers who live in any one of the country’s thousands of taxing jurisdictions.

Using a crowdsourced story format, we asked entrepreneurs last month to share their take on the proposal and how it would affect their businesses — and though a few supported the change, most denounced the measure as yet another potential burden on their business.

“This law is a nightmare,” commenter Carrie82 wrote. “I am a small-business owner, and with this bill, I can at best expect about an 80 percent drop in online profits, because I will have to stop selling to states other than my own that have sales tax.”

Many expressed similar concerns, warning that the cost of complying with the new tax mandate will deter small retailers from interstate commerce. Commenter CoachMaria, whose company sells CDs and e-books across the country, said she already stopped selling to several states that tried to collect taxes on her sales.

If Congress approves the change, she intends to stop selling out of state altogether.

“It’s a very costly proposition,” she wrote, noting that the software needed to monitor varying sales tax rates would be too expensive. “No states have the same rate.”

Hoping to ease concerns from the small-business community, the authors of the bill exempted companies with less than $1 million in annual revenue from paying online sales tax. But many have argued the cap is too low to protect small retailers.

“I believe it should be raised to $10 million,” wrote commenter Shirley Tan. “If a business sells $1 million online, it doesn’t mean that they got to keep all the money. They have inventory costs, labor costs, shipping costs. So even though it sounds like, ‘Wow, a business is selling $1 million,’ it sounds like a lot but it really isn’t.”

One Internet giant, eBay, has taken the same stance, sending a letter to users urging them speak out against the bill, or at least urge lawmakers to raise the exemption ceiling.

Taxation without representation?

Other critics include lawmakers in sales-tax-free states and proponents of a smaller government — the latter of whom believe the bill would set a dangerous precedent by forcing business owners to pay taxes in states where they have no presence, and where they therefore have no vote and see no direct benefit from their tax dollars.

MORE - http://www.washingtonpost.com/business/on-small-business/crowdsourced/online-sales-tax-divides-small-businesses/2013/05/03/36b6b3c6-b351-11e2-bbf2-a6f9e9d79e19_story.html