A Guide To The Online Sales Tax and How It Affects You

A Guide to the Online Sales Tax

Up until now, online shoppers have enjoyed an e-commerce environment that did not include the evil three-lettered word, “TAX.” But thanks to our government, that might soon change.

The U.S. Senate recently passed the Marketplace Fairness Act, which would require all online retailers to collect sales taxes for the states where they ship goods. But just because this act passed the Senate doesn’t mean it’s a law quite yet. The House still needs to pass the law. If it does pass through the House, it’s assumed that President Obama will support it.

The reason why online shoppers haven’t had to pay sales tax for e-commerce is that certain laws require stores to collect taxes from goods shipped to states where that store has an actual presence in. But with e-commerce becoming the go-to place for shopping, most stores ship all across the country, despite having one centralized location.

But don’t we pay tax now?

Here’s the tricky part. Consumers are supposed to pay a Use Tax (at least, a majority of online shoppers are supposed to). However, this Use Tax requires consumers to keep track of their purchases and pay the sales tax during tax time. Who does that? Well, apparently, not many people at all.

Proponents of the online sales tax say that this Marketplace Fairness Act isn’t a new tax at all, but just a more efficient way of enforcing existing laws. Under this act, states that want to collect taxes will be required to provide companies with free software for calculating taxes, and then create a single entity to receive these payments. The responsibility will no longer be left up to the consumer.

Who would want to support this tax?

The companies that support this Act are national companies like Target, since Target has a location in basically every state in the country. Since they have so many locations, Target is required to collect taxes on purchases, meaning that their consumers potentially pay MORE for a product, than a consumer of a smaller business that isn’t required to collect taxes.

Companies like Target are calling out “Shenanigans!”

Is it even worth it to collect online sales tax?

In a word, yes. The National Conference of State Legislators estimates that in 2012, states as a whole lost a combined $23 billion in uncollected sales tax revenue, based on $225.5 billion in online sales.

The way that it will work (if it passes), is that people who live in states with a sales tax will pay the same amount of taxes online as if in person. People who live in a tax-free state (New Hampshire, Alaska, Delaware, Montana, Oregon) will not have to pay taxes.

What’s this mean for e-commerce merchants?

Like it or not, there’s a lot of common sense behind this act. Should a merchant be penalized for being successful and having multiple locations throughout the country? If you were one of these companies, you’d likely say no. If this act pushes through, what this means is you can no longer rely on a price edge over larger competitors, due to a tax issue. You’ll have to find new ways to market your products and reach motivated consumers who are ready to convert.

What you need to focus on is a marketing approach that makes this tax act an irrelevant factor in your business. That’s a complicated task to take on. But we’re up for the challenge. We help online merchants remain competitors in their field. Learn what we can do for you by calling us at 1-888-277-5429 or filling out our contact form.