Monthly Archive July 2013

The Amazon Tax

Recently the web, news channels, blog sphere and just about every other media outlet has been abuzz about proposals and amendments now making their way through the house and senate of the US. In a nutshell congress is proposing to eliminate the so called exemption that has existed through court tests and legislation, that has eliminated sales tax, when purchases are made online unless the company has a physical presence in your state. Most ecommerce sites do not have to collect sales tax from purchases outside the states where they have operations. Just as long as the laws have existed that prevent the websites from collecting sales taxes, many brick and mortar sites have been complaining of the unfair advantage that ecommerce sites enjoy. The advent of mobile devices that can search the web for products based on a photo of a product bar code have increased the advantage even more, as brick and mortar establishments have become the showroom for ecommerce. Smart competitors are fighting back by investing in such companies as ‘Sensewhere’ and ‘Point Inside’ that can provide customers with coupons for items that are near their in store position. Many stores, such as Best Buy and Sears, are using slightly different product models that make comparison shopping difficult, and many other methods are being used to entice customers to buy now. That being said, some establishments are still bankrolling the legislation to, as they call it, level the playing field.

There have been plenty of coverage about the fairness the bills would bring about or the disaster just lurking behind the curtain. My take is from a small business standpoint, in particular from a small ecommerce merchant’s perspective. Let’s take for example my state, North Carolina; there is slightly over one thousand zip codes (the preferred way to determine the point of taxation) contained in about one hundred counties. The state determines the taxation point for online sales not by the location of the business, but by the delivery point of the product, so that means that an ecommerce site would file sales tax receipts in over a hundred jurisdictions in North Carolina. The law requires the filing of a return even if no tax is collected (once you start filing you can’t stop). So, as the law stands now, business are supposed to be filing a return whether tax is owed or not. Multiply that by all fifty states and in addition, the filing frequency can be monthly, quarterly, semiannually or annually depending on the revenue.  Some states let you change filing status based on the amount owed without declaration and some states don’t  such as New Mexico, they must tell you how to file (I found that out the hard way and had to refile dozens of returns in New Mexico). Local counties control the sales tax rate or a portion of it, as in my present state of North Carolina, rates can vary frequently and a whole cottage industry has sprung up just to keep in compliance.

Many small businesses are running web sites with razor thin margins already (don’t believe those so called talking heads that say there is millions to be made, it’s a hard business), and now face losing even that margin to compliance, if the new legislation goes into place. I already pay Internet tax, in my state, and it is called ‘Usage’ tax. I record it for every item I buy online. Most accounting software such QuickBooks does not even handle ‘Usage’ taxes. I had to create a hack to properly adjust my revenue collections, the hack can be found here if you are interested. Presently paying sales tax takes about five minutes every quarter thanks to the hack. I have several clients though, that may be facing a daunting challenge if this legislation is passed. There is talk about phasing in various plans or some exemptions for small business but in the end if the legislation passes it will eventually be required by all sizes of business. I know you’re thinking you poor slob, you make all that money and you’re complaining about paying some taxes, well it’s not the taxes that worry me, but the cost of staying in compliance. You either pay a service, pay someone or do it yourself, either way it will cost more to deliver products to customers and so not only will product prices rise but it may also reduce product choices to help pay for the change.  If government would just set the rules and then leave them alone for awhile things would be easier, but if you have ever used tax preparation software or an accountant you know that every year the rules get changed. This is where my beef is, governments continue to look hard for new revenue sources from increasing parking tickets, to hotel room taxes (my city just did that a few years ago) etc. What I can’t understand is why they can’t cut spending like the rest of us do when times get tough. Somehow I just wish we could take the checkbook away from the tax and spend bureaucrats and put it into the hands of people that understand what it means to run a business.