If you are starting a business, you know there are many advantages to offering your products on the Internet. It means selling your product to national consumers without the headache of sales tax collection and record-keeping. For consumers, most online retailers don’t charge sales tax – if something is the same price in a brick and mortar store, ordering it online can offer cost savings.
The Senate passed a measure known as the Marketplace Fairness Act in May that would let states collect out-of-state online sales tax provided they created free software and a state entity to handle it. It exempted online out-of-state retailers with receipts under $1 million per year. The Act passed with Democratic support, but hasn’t made a dent in the Republican-controlled House which now, according to Businessweek, is getting ready to take up its own Internet sales tax legislation – with no small seller exemption.
House Judiciary Committee Chairman Bob Goodlatte (R-Va.) has set forth seven principles to guide his committee’s discussion of an Internet sales tax. The two stipulations below stand out:
1. “Tech Neutrality. Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.”
2. “Simplicity. Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.” Goodlatte believes a small seller exemption would make businesses owners reluctant to grow past a certain point. Opponents of the Internet sales tax, meanwhile, like to argue that it would place an undue burden on companies that have to comply with an unwieldy mess of tax codes. Supporters point to a provision in the Senate bill requiring states to provide free tax compliance software.
Small business owners should not plan to collect Internet sales tax just yet. Proposed legislation has been kicked around for years without enactment.
The Senate passed the Marketplace Fairness Act in May, and it made some small businesses exempt from collecting sales tax on out-of-state transactions. The law said businesses with more than $1 million in annual revenue would have to collect tax for online transactions.
Read more about small business and taxes.