Small Businesses May Lose Online Sales Tax Exemption

Small Business Tax Tips

The House of Representatives has begun discussing a Senate bill passed earlier this year that requires online merchants to collect sales tax, and have recommended removing the small business exemption included in the legislation.

May’s Marketplace Fairness Act established requirements for online merchants to collect sales tax from buyers depending on their state of residence. The law would remove the burden of self-reporting from individuals and businesses that shop online. Lawmakers argue that it will equalize competition between online merchants and brick-and-mortar retailers, the former of which are able to undercut their competitors’ prices by large margins due to limited sales tax enforcement by individual states.

While the Senate included an exemption for small businesses with less than $1 million in annual revenue, House Judiciary Chairman Bob Goodlatte (R-VA) contends that the law should be simple and inexpensive enough to follow that all online merchants should be able – and required – to comply.

Online auction site eBay, which previously supported raising the small business exemption limit to $10 million, has now come out alongside online retailing giant Amazon in support of Goodlatte’s list of principles.

Americans are not in love with the idea of online sales tax. Gallup reported this summer that 57 percent of Americans would vote against an online sales tax law, while only 39 percent would vote in favor. Respondents aged 18-29 were overwhelmingly against the tax, by a margin of 73 to 27.

The removal of the small business exemption could prove costly for many small online merchants, who would find it expensive and cumbersome to establish frameworks for charging sales tax. There are more than 9,600 taxing jurisdictions nationwide that merchants would have to be aware of in order to calculate proper taxes; in addition, the law would require online merchants in sales-tax-free states to charge sales tax to their out-of-state customers.

Small businesses with online operations must be prepared to comply with the new sales tax legislation if the exemption is ultimately removed. Small business factoring provides immediate access to cash for merchants to cover the cost of implementation without sacrificing other important expenses.

Factor Finders can help you find the right small business factoring program. Contact us today to learn more.