On Monday night, the Senate passed a bill which aims to make it easier for states to collect sales taxes for purchases made online. Although this may be beneficial for state governments, small online retailers are beginning to worry about the bill’s potentially large impact on their business.
Small businesses with annual sales under $1 million are exempt from collecting sales taxes from their customers. Companies with revenues on this borderline must now make critical decisions regarding how they will proceed with business going forward.
Nancy Mashragi, who sells refurbished electronics through her eBay store, Concept Electronics, said she would stop selling iPads, because of their high cost and low profit margin, so that she would fall under the $1 million small-seller exemption.
“That’s something off the bat we’d cut out because it’s not worth it for us,” says Mashragi. “Why would we go through the hassle of going over that threshold and being responsible for all those taxes on something that has a very low profit margin?”
The bill leaves many small online retailers with the task of figuring out how to manage collecting and remitting the new sales tax to state governments. This is different from how it used to be. States used to only collect sales taxes from businesses with a physical presence in that state, such as a store or warehouse. Out-of-state retailers were not required to collect sales tax because it was deemed too difficult for them to abide by so many different tax jurisdictions and rules.
Online shopping has grown into a $226 billion-a-year business and avoiding the sales tax is a primary reason why customers shop online. It will be interesting to watch how this new sales tax influences the purchasing patterns of online shoppers. Retail behemoths fighting for industry dominance, such as Walmart, Amazon, and eBay will also have to adjust their business plans to accommodate the changes associated with this revolutionary bill.