The U.S. Senate has passed the Marketplace Fairness Act of 2013, and it is currently under consideration in the House of Representatives. Most analysts feel confident that some version of the law will pass although it isn’t yet clear what changes might be made.
But 1-800Accountant Vice President Gary Milkwick says that the Internet tax law currently being considered in the U.S. House isn’t as much of a burden on small business owners as some might fear.
For example, Milkwick points out that the Senate version of the Internet tax law exempts companies with less than $1 million in annual revenue. The House version raises that exemption to $10 million.
“Customers will no longer have an incentive to buy online instead of from a local seller in hopes of saving the 6-10% sales tax. This may help small businesses that sell the majority of their goods locally,” Milkwick adds.
Still, there’s no question that the bill will add a compliance burden on growing small businesses. One bit of a silver lining is that the Senate bill forces states to simplify sales tax collection processes. “In particular, each state will only be allowed to have a single point of contact for sales tax. Right now, some states such as Alabama, require separate payments in each county. So the law could reduce the number of sales tax jurisdictions from nearly 10,000 to just 50 (one for each state).
“There is also a safe-harbor provision in the law that says that protects small business owners from penalties if they collect the wrong sales tax amount because of a problem in the software they use.”
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The tax professionals at 1-800Accountant are already fielding questions from clients around the country about small businesses and Internet taxes. One thing that Milkwick says is important to remember is that the law has been passed by the U.S. Senate, but not yet by the House of Representatives. So it won’t take effect unless both houses of Congress pass it, and it appears likely that there may be differences in the versions passed in each chamber.
So it may be several months before the final legislation is passed, and it isn’t slated to take effect for several months after that. But it’s not too soon for businesses that have more than $1 million in sales – or expect to reach that point within the next year — to start getting ready for Internet sales taxes.
“One major step you should take now if you sell online is to review the software or payment processing system that your business uses to process online orders. If you use a commercial system such as PayPal or a shopping cart from a major vendor, they’re almost certain to have a solution in place that will allow you and your customers to continue business as usual with a check-out system that adds the correct sales tax for the buyer’s home address to their purchase.
“But if you created a customized shopping cart for your website, or the website designer you used installed an open source shopping cart solution on your website, you may need to start now adapting that customized system to the new law,” Milkwick said.
Getting Ready for the Internet Sales Tax
The other steps small business owners should consider when getting ready for Internet sales taxes include:
- Talking to your tax advisor about any changes that might be required in your bookkeeping and accounting systems.
- Adding appropriate language about sales tax to your website.
- Setting up taxpayer ID numbers (if required) in each of the 50 states, so that you aren’t caught in the crush of new account set ups when the law takes effect.
- Reviewing your cash management plan to make certain that you have enough cash set aside to handle the cost of implementing the new system and making any required estimated tax payments on time.
- Training sales and customer service staff on handling questions about the Internet sales tax and its effect on customers.
“Overall, I think business owners will find that a preparation now will make implementing the law easier when it is time to begin collecting and paying sales taxes on remote online sales,” Milkwick concludes.