A recent editorial in my local city newspaper, The Kennebec Journal, of Augusta, Maine discussed the unfairness of the failure of eCommerce websites not collecting sales tax from customers who do not reside in the same state as the website. The editorial author claimed that it gives the website owner an unfair advantage over Brick and Mortar stores that are required to collect the tax from their customers, thus resulting in lost revenue to the business owner as well as millions of lost dollars in taxes to the state.
The editor, of course, wanted a law passed that called for the collection of sales tax from all states, regardless of where the website was headquartered. He knowingly proclaimed that the effort needed would be minimal, and hey, it could be applied only to sites with $500,000 or more of gross revenue, so it wouldn't really affect small businesses anyway. He also assured readers that the software to collect the tax was already available at a minimal cost. I didn't see any mention of his business experience in the editorial, but I'm sure he must have consulted with several business owners before he wrote the editorial. Right?
OK, full disclosure before I continue; I am an internet retailer and have been since 1997 - back when most 'journalists' couldn't even spell www. But, I have also managed or owned brick and mortar stores for close to 20 years, so I have experienced both sides of this issue. Believe it or not, when you are writing an opinion on how much government regulations cost and affect a small business, it sometimes helps to have 'been there, done that'.
The editorial tried to give the opinion that the cost of complying with the tax laws of 50 states would be minimal. I have no problem whatsoever with collecting Maine sales tax, it takes about 20 minutes every 3 months to run a report, open the States' website, enter a few figures and transfer payment. Multiply that effort by 50 and the cost would simply be impossible for a small business. The software may already be available at a minimal cost (whatever that means). But the time involved with integrating that software with my current shopping cart configuration would entail a complete restructuring of my entire website, a task that would take weeks, if not months.
And then there's the $500,000 compliance figure. Obviously, if a company's volume is that high then only the evil rich would have to deal with this time consuming regulation right? The article conveniently forgot to subtract the cost of goods sold, rent, wages, wage law compliance, computer repair and maintenance, advertising (in my case advertising takes a 30% cut off my bottom line), shipping and all other business related expenses. I guarantee you that that brings the actual profit down to 5 figures and not high 5 figures either.
Having read this far, it may come as a surprise to some that I agree that there does need to be a level playing field between physical and virtual stores. As far as I know, all Maine retailers collect Maine sales tax from all their customers, regardless of their state of residence. Does LL Bean ask for a drivers' license, then if you're from Michigan, charge that states sales tax and pass it on? Of course not. So then, why should an internet retailer be forced to collect multiple sales taxes? If a new law is your only answer, and you truly want a level playing field,why not make it a law that all retailers - internet or brick and mortar, collect their respective states sales tax and pass it on to that state. While you're at it, make that law apply to catalog sales as well. California collects their sales tax, Maine collects theirs, Michigan and all the rest collect theirs, revenue goes up and the playing field is level.
Now that I have that dilemma completely solved, I have some more ideas for generating additional tax revenue. Let's pass a law that all newspaper websites have to charge a fee to their readership and collect a %5 tax. In fact, newspaper sales are not taxable at all, whether they be bought at a convenience store or a vending machine. How is that fair to magazine publishers?
Paul is the owner and operator of http://www.vacuumcleanershop.com/, an ecommerce website providing cleaning and floor care related parts and supplies since 1997.
