By Willie Pena
The Marketplace Fairness Act of 2013 will require online retailers making more than $1 million dollars to charge customers sales taxes if those customers live in a state that has a state levy. This new retail charge will shift the cyber marketplace, subjecting big sellers to tax bills from nearly every state. The Act is still being debated in the House; if it passes, gone are the days when online stores only had to worry about state taxes in areas where they had brick-and-mortar stores or distribution warehouses. Here are 10 new worries business will have to tackle:
1. Retailers Must Send Tax Payments to Multiple States
In a move that could cause accounting havoc at many businesses, online stores will have to negotiate various tax laws and tax rates for 20 or 40 additional states, depending on where their customers live. Tax payments will have to be remitted and each retailer may face tax audits as states try to collect every new coin they can from the new universal tax law.
2. Stores would need additional financial software and workers.
Quarterly and annual accounting would not be sufficient. Companies would be required to tally state taxes on a monthly basis. This would be intensely costly and time-consuming, requiring many businesses to hire additional employees and buy new state-approved software.
3. Shoppers can brace themselves for higher sales totals.
With state taxes ranging from 4.35% in Hawaiito 8% in many Southern states and more than 9% in California, online buyers can expect to see significantly higher charges on their checkout screens, particularly for big ticket items or a shopping cart with dozens of items.
4. Online Sales May Decline
Buying items tax-free has always been a lure of online shopping: a nice boon for the inconvenience of waiting for a delivery truck to arrive with the packaged goods. With 45 of 50 states collecting state taxes and driving up online shopping bills, many consumers may browse online but opt to shop at the local store and avoid the shipping delay.
5. Small- to medium-sized online retailers my steal customers from larger online stores.
The Marketplace Fairness Act is, perhaps unfairly, aimed at businesses raking in the big bucks. Stores netting less than $1 million in sales from remote customers would be exempt. That means their online shop can still sale goods to consumers in any state without adding taxes.The downside is that attracting more customers could put small retailers at risk of surpassing that one million dollar limit.
6. Online retailers in tax-free states may start catering to home-grown customers.
Montana, Alaska Delaware, New Hampshire and Oregon will continue to be tax free states. Consumers in those states who buy from state stores can avoid paying online taxes. Expect to see campaigns that urge citizens to patronize home state stores to save money.
7. Auction site sellers will be forced to charge state taxes.
EBay and other auction sites have evolved from being a haven for casual secondhand sellers. Now, many entrepreneurs operate large stores and auction hundreds or thousands of items a day and exceed more than a million dollars in sales each year. Now, those sales would be burdened with tax management.
8. Online stores might expand and take jobs to new locations.
In the past, physical expansion of online retailers dovetailed with tax-friendly states. Now that nearly all states will charge taxes, some retailers may simply let demand dictate growth. However, expect the five tax-free states named above to still get special interest from some businesses looking to open new factories or warehouses.
9. Online Stores will experiment with new deals to keep customers.
To combat the loss of potential customers to brick-and-mortar retailers, expect online stores to come up with unique promotions and deals to retain their customers. In order to stay competitive, online retailers will have to find a way to offer new deals and price cuts to be attractive to consumers now that they can’t rely on shoppers looking for tax-free buys.
10. Suppliers will also endure tax burden.
Language in the universal tax law requires that even suppliers who don’t sell to customers but instead sell to retailers who serve online customers to also report taxes and collect taxes from retailers.
Willie Pena is a freelance writer, video producer, visual artist, and music producer. He prefers the Oxford comma. In addition to writing for firms such as IBM, Colgate, Transunion, Webroot and a multitude of private clients and websites, including Hays Firm LLC, he also shoots, directs, and edits the hit celebrity web series “Teens Wanna Know.” Catch his rare blog posts on williepena.com, and connect with him on Google+, LinkedIn.