Online Sales Tax Measure Concerns Many Small Retailers

Both small and large retailers with a storefront on the Internet have their eyes turned to Washington as the House and Senate consider measures to require web retailers to charges customers tax for sales made online.  But discussion continue as to what size of retailers such measures should apply to and if online sales tax would help brick and mortar retailers better compete on price.

The measure being considered in the Senate would apply to retailers whose gross and annual sales exceed $500,000.  The House measure only applies to retailers where their gross and annual sales are $1 million or more.

Known as the Online Marketplace Fairness Act, the goal of the law is to address a loophole permitted by a Supreme Court decision in 1992 that required a retailer to only collect sales tax in a state where it had a physical presence.  With the growth of online sales via the web, which was not foreseen in 1992, retailers without physical locations across the nation benefited because they did not have to charge customers sales tax.  The lack of a sales tax, which is over 9% in some states, is enough to draw consumers to buy online first for many items.

While it would appear at first glance that all retailers with a brick and mortar presence would support the law, some retailers with a small presence online are not ready to support the law.  On such small retailer owner is Mike Vahey, whose company Breathe Healthy is based in Virginia.

Under the current laws, Breathe Healthy is only required to charge residents of Virginia sales tax of 5%.

“Right now we charge people sales tax if they are from our state.  For any other state, the burden is on [consumers] to pay it, and I’d assume they don’t.”

Vahey believes the idea of forcing retailers to collect sales tax from buyers from all states will not help to level competition between online and brick and mortar retailers because so many brick and mortar retailers already have an online store that allows them to sell their products nationwide as well.

“Brick-and-mortars will say [current laws] are unfair because Amazon is so big, but I am not big.  I am a small business.  I think it’s another way for state revenues to be increased, but you can’t say it evens the playing field.”

“I already spend a certain amount of time each week making sure I am in compliance with other taxes I have to pay.  This also increases the size and scope of regulation, and I am for reducing the size of government and administration.”

Vahey believes that because of the small size of his business he does not benefit significantly right now from a lack of online sales tax.  And he already has to absorb shipping costs to remaining competitive with larger retailers.

Mike Bisceglia, the owner of the online jewelry store Stauer.com, is more concerned about the difficulty in complying.

“I understand states and localities want to try to get their funds up.  But from an operational standpoint it will be reasonably onerous for us.  For example if we are selling jewelry in Rhode Island, there would be sales tax.  But if we are selling rare coins, there won’t be.”

Ton Keleman, the CEO of Royal-Pedic luxury mattress company in California, has both a store front as well as an online sales site.  And Keleman is in support of a measure such as the one being consider, because of how customers will shop at a local store and then purchase online at a savings when they do not have to pay sales tax.

“This [law] is a way to level the field.  But it also means online dealers would have to file sales tax returns with umpteen locations and states.  Brick-and-mortars will continue to be negatively affected if something like this doesn’t pass.”

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.