In its latest concession in the Internet sales tax debate, Amazon agreed this week to start collecting sales tax in Connecticut. But proposed federal legislation to tax online sales wouldn’t just apply to the “Amazons” of internet retailing; small businesses who sell goods and services online could also be affected.
U.S. Senator Lamar Alexander plans to reintroduce legislation that attracted bipartisan support in Congress last year but died during a notably unproductive legislative session. The proposed law would allow states to require retailers to collect sales tax on online purchases, whether or not the company has a physical presence in that state.
Some states are moving ahead on the issue. A Florida Senate panel recently approved a bill that would require remote retailers to collect and remit sales tax on online purchases made by Florida residents.
Retailers remain divided. Amazon first opposed the tax, but it now joins the National Retail Federation, labor groups, state governors and other big players in supporting the proposed law.
E-commerce giant eBay says it’s standing up for the little guy in opposition of the tax, which, it argues, should not apply to small retailers — a large segment of its customer base. The 2012 legislative proposals included a provision to protect small businesses, exempting companies either under $500,000 or $1 million in annual revenue (Senate and House versions, respectively). But eBay argues those exemptions should be higher.
Some start-ups and small businesses would fall under the proposed exemption limits. However, those limits do not apply to many retailers that fit within the small business category, which the U.S. Small Business Administration classifies as having up to $7 million in average annual receipts.
Proponents of the law argue it levels the playing field for brick-and-mortar sellers, who have to charge sales tax on all purchases and incur costs associated with operating a physical store, such as rent and utilities. They also say the proposed legislation would protect states’ rights to levy taxes and drastically increase state revenue. Estimates vary widely, but studies suggest Florida could gain between $55 million and $803.8 million in annual revenue from an online sales tax, according to a recent report by Florida Tax Watch.
Opponents of the legislation echo a 1992 Supreme Court ruling which says such a tax would put an undue burden on smaller internet retailers, who would have to keep track of laws and regulations in 50 states.
Collecting and reporting sales tax for customers in thousands of different tax jurisdictions would be a major challenge for small businesses, which often have limited resources and staffing. Opponents of the tax also argue that online retailers have to account for other costs, such as shipping and handling, which don’t apply to brick-and-mortar stores conducting local sales.
So who will come out on top in the internet sales tax debate? We’ll have to wait and see, but with Amazon now leading the pro-tax movement and eBay pushing back, it’s possible that small businesses will get caught in the crossfire.