As the Internet continues to radically change commerce, government tax codes work to adapt to the new challenges and demands of the modern market. One such attempt is the Marketplace Fairness Act, fresh from its victory in the U.S. Senate and, at the time of this writing, awaiting its day in the House of Representatives. While there is strong speculation that the bill won’t pass through the House in its current form, there still remains the possibility of a slightly-modified Fairness Act—or a similarly-minded bill—making its way into law. If you’re a business owner with a significant online component, here are 3 tax considerations regarding the proposed legislation that you’ll want to keep in mind.
Businesses With Approximately $1 Million In Online Revenue Will Face A Difficult Situation
Currently, the proposals in the Marketplace Fairness Act would require any business with online sales of $1 million and above to collect and submit sales tax for each state that a transaction is conducted in, regardless of the resident state of the business. So if you have a thriving national market for your product with the appropriate revenue, you may be required to collect, process, and submit sales tax for all 50 states.
Businesses whose online revenue fluctuates around the $1 million mark will face a particularly difficult situation: if you meet or exceed the monetary cut-off, you’ll obviously be required to engage in a time-consuming and potentially expensive process. But if you’re just shy of a million, the current bill would not require you to collect sales tax. This leaves businesses with the burden of either preemptively fulfilling complex tax paperwork that may be unnecessary when the year’s totals come in, or struggling to quickly complete the obligations if a windfall leads to an unexpected increase in profits. Depending on how your annual numbers come out, you may find yourself wasting hundreds of man hours on unneeded paperwork, or desperately playing catch up at the end of a particularly profitable year.
Businesses Will Potentially Be Sending Tax Info To All 50 States, Leading To An Increased Risk Of Identity Theft
Whether your company uses the free services provided by the government, hires the paperwork out to a third party, or processes everything in-house, you’ll still be sending out up to 49 more sales tax documents than you’re used to. This new volume can lead to rushed and potentially unsafe procedures, with sensitive company info going out to dozens of new organizations and government branches. It’s a good idea to spend a little time preemptively working out what the best procedure would be for your specific needs, so that you don’t find yourself forced to adopt unsafe practices if the Fairness Act happens to become law in the near future.
Business Supplies And Resources May Be Subject To New Taxation
If your business formerly purchased thousands of dollars worth of office supplies online for the sales tax break, you may find that particular benefit dissolved. The Fairness Act would require any suitably large office supply chain to collect sales tax, leaving you with the option of either paying the additional fees, or attempting to find an out-of-state supplier with less than $1 million in annual sales to buy from.
If you were purchasing other essential materials and paying the sales tax rate of your supplier’s home state, you may find this benefit eliminated as well. The Fairness Act would require businesses to collect sales tax based on the customer’s location, not the supplier’s. So if you operate a business in California, you would no longer be able to purchase materials online from suppliers in Oregon, a state which happens to be free of sales tax entirely, without paying the California sales tax rate of 7.50-10%, depending on where your business is located. This may provide a boon to certain local suppliers, as you’ll most likely base your buying decisions off of shipping price instead of sales tax rate, but it may be disastrous for companies that thrive on being located in a state with low sales tax and selling their products nationwide.
With the increased cost, paperwork, and potential risk for identity theft, it’s a great idea for online businesses to thoroughly prepare for the potential scenarios that would result from the Marketplace Fairness Act becoming law.
John is a blogger who frequently writes about the intersection of technology and small businesses. He writes for Internet insurer Protect Your Bubble, a company that provides excellent identity theft protection services for individuals, whether they happen to be small business owners or anything else.