If you run an eCommerce store, or have considered starting one, then you no doubt understand the many challenges that accompany running an effective eCommerce store. From ensuring your products are properly described, the checkout experience flows smoothly, to ensuring the proper shipping is charged and the right security is handled on your site. Whew, it’s a lot!
One issue most electronic retailers have been able to avoid to this point is sales tax. Aside from people in your state purchasing from your store, you often didn’t have to worry about collecting sales taxes for other states; that was the sole responsibility of the consumer to file with their annual income taxes.
If you haven’t heard, this is under scrutiny by the Senate and Congress with what is known officially as the “Marketplace Fairness Act”, or unofficially as the Internet Sales Tax. Regardless of how you feel about this legislation, everyone who runs an eCommerce store needs to know about the potential implications.
The Internet Sales Tax Proposal
Boiled down to the very basics, this legislation is designed to allow state and local governments to more easily collect sales taxes on Internet purchases, regardless of the location of the retailer. This is something that is being considered very seriously as more consumers turn to the Internet to make purchases and sales tax revenues are dropping.
Small Business Exception
Built into the legislation is a small business exception, which says that any eCommerce retailer who sold less than $1,000,000 in remote sales during the previous year are exempt from collecting and returning sales taxes. Be sure to look at the specific laws of your state to ensure you know whether you need to collect taxes for purchases made in your state.
Compliance starts with being able to calculate the correct sales tax for the state from which a purchase is being made. In order to help streamline this for businesses, there are two things you need to be aware of:
- SSUTA (Streamlined Sales and Use Tax Agreement) – This is an agreement to which states can be members to help consolidate and streamline the implementation of this proposal.
- CSP (Certified Service Provider) – These are tax compliance providers that work with the SSUTA membership to ensure a retailer has the correct sales tax calculation to charge consumers (minimum) all the way to helping remit the sales tax.
The “Hidden” Costs To Consider
While a lot of what’s published around this act deals with how to calculate and collect the right taxes, there is the “hidden” administrative costs to consider as well. Be sure to check with your accountant or tax attorney to understand the administration costs of paying taxes to potentially 50 different states plus some municipalities.
Begin Planning Now
No one knows if this legislation will pass the House. It did pass the Senate on May 6, 2013 with a vote of 69-27, and is now with the House to decide the next action. If it passes the house, we could it take effect as early as January 1, 2014. Be sure to contact your state representative to express your opinion of this proposed legislation.
Planning now is one of the best ways to ensure you are ready. Is your eCommerce site structured to allow you to easily implement the addition of a tax if it’s approved? Are you using a platform like PayPal, where you have to provide your own sales tax information, or is it pulled from a trusted database that stays current? These are just a couple questions you need to consider in preparation for this act.
If you need help reviewing your eCommerce site, or your plans for one, contact the team at DirectiveGroup. Our team is uniquely structured to ensure you are ready for this potentially important change to how ecommerce is conducted.
This article is not intended to provide legal or accounting advice. Be sure to contact a professiona accountant, tax or business attorney to fully understand the implications the proposed legislation.