Prepare your online store for the onslaught of state sales tax
Etailers have long benefited from the simplicity and the cost advantages that come with not having to charge state sales tax. Recently, however, state governments, desperate for revenue, are making the push for change.
In a recent article published by Reuters, sales tax from Internet commerce has arrived in California as well as in a handful of other states. Although the new law is bringing in millions of dollars of revenue, it’s not hitting the levels initially forecasted by researchers. In the case of California, the $96.4 million received between September and December of 2012, its first full quarter of collections, came in below the expectations set forth by a University of Tennessee study.
“The study estimated that California, if it did not act to collect more online sales tax, would miss out on as much as $1.9 billion in 2012 revenue,” said the Reuters editors. “Nationwide, it estimated, states would fail to collect $11.4 billion in 2012.”
Whether the collections missed the mark or not, the new requirements will certainly level the playing field for online retailers and brick-and-mortar stores. And it will also complicate how an etailer operates.
“What was once the problem of large corporations with extensive and far-flung networks of administrative offices, sales forces and warehouses is now the problem of small businesses as well,” explained an editor at PracticalEcommerce.com in September 2012. The confusion lies in whom to charge the state sales tax to. Determining whether it’s applicable to all shoppers or just those who reside in the same state will require the assistance of a professional accountant.
The need to work closely with an accountant was further reinforced by Professor William Fox, who headed-up the Tennessee study. According to Reuters, he attributed the difference between his study's estimates and lower state collections on the fact that many smaller e-retailers may be exempt from collection – a loophole that all etailers will want to investigate.
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