Many of the entrepreneurs across the country that do business online may find themselves in a tricky spot these days. They may have a lot of things on their plates, including their abilities to expand, sales, small business insurance costs, and more, and now may also have to start conforming with a potentially costly new tax.
Currently, most companies do not have to charge sales tax to consumers buying products online, but that could soon change, according to a Washington Business Journal editorial from Steven Power, the chief revenue officer for ecommerce platform Bigcommerce. The Senate recently passed a bill known as the Marketplace Fairness Act, which also has the support of President Barack Obama. If the U.S. House of Representatives were to also sign off on the bill, it would put into place a rule which states that companies doing business online would have to apply the cost of sales tax for the state in which the customer lives to the total order price. This would apply to all companies with more than $1 million in annual out-of-state revenues, making up a substantial number of small businesses nationwide.
As the name implies, the law is designed to help level the playing field between online businesses and brick-and-mortar stores, but in reality the effect would actually create significant difficulties for smaller businesses in particular, the report said. This is because while online retail giants like Amazon.com, Wal-Mart and Target have the financial capability, infrastructure and people necessary to put systems that track and charge the correct sales tax totals for every purchase into place and make sure they run smoothly. Small business owners, meanwhile, likely don't have that luxury, and may struggle with compliance under the new law as a consequence.
Another issue of the regulatory burden
In addition, because there are 45 states in which sales tax is charged to consumers, that means companies will have to file as many tax returns as that, as often as once per month, in addition to their obligations to the federal government, the report said. Therefore, the necessity to deal with all that paperwork and process every bit of sales data they have to make sure they are not running into any tax issues could eat up a significant portion of their time. Most companies operate on profit margins of between 10 and 20 percent, which is relatively thin, and therefore any such additional demands on their time could end up being so costly as to dampen their abilities to succeed.
Businesses will also have to raise their prices to help cover these added sales costs, if not on the products themselves then certainly through the tax being applied at checkout, and that, too, can create problems, the report said. With most state sales taxes averaging between 6 and 8 percent, the added cost to consumers could be sizable, particularly depending upon the types of products being purchased. Foreign companies will not be required to adhere to the laws, and may be able to offer lower costs, which could in turn take money out of a small business owner's pocket.
Owners may want to be mindful of any regulatory changes that could hurt their abilities to turn a profit, or even expand hiring, in the near future. Those looking to improve their bottom lines may want to consider whether they can find more affordable small business insurance, including for policies such as workers' compensation or liability insurance. Doing so may help them to find more financial flexibility going forward.