The proposed internet sales tax could affect everyone from hobbyists to big box stores but it may be difficult to determine exactly how much an individual’s revenue is going to be impacted–or how the whole thing will play out. The proposed “Marketplace Fairness Act” is aimed at making online retailers do what their brick-and-mortar counterparts have to: charge sales tax based at the rate of the buyer’s home state. Cynics believe it’s also designed for states to be able to extract another source of revenue from those who don’t live there.
In recent years, many customers have been lured to online retailers. It’s convenient and sometimes cheaper. Online retailers have less overhead, they can get items at wholesale prices and they don’t need to pay sales tax. Internet sales have traditionally gotten around sales taxes when the buyer isn’t based in the same state as the seller. Originally there was no sales tax at all, but later, sales tax was implemented for retailers that had offices within the buyer’s state.
The latest proposal, passed by the U.S. Senate and soon to be under consideration in the House of Representatives, would force any online retailer with $1 million or more in sales to charge the sales tax that the buyer would normally pay if they were buying from an entity in their state. The earliest it could be enacted would be this October.
Higher Prices for Online Purchases?
Only a small number of sports collectible businesses would likely be affected because of the $1 million minimum. However, Dean Hanley, owner of Dean’s Cards in the Cincinnati area, has built his company entirely online and it’s developed into a seven-figure operation. Over the last ten years, he’s hired numerous employees to keep up with orders, acquire collections and keep track of the company’s 1.5 million card inventory. Hanley believes the sales tax he’ll likely be forced to tack on to orders will amount to more work for accountants and quite possibly, higher prices.
“I think this has huge implications for small business, including our hobby,” he told Sports Collectors Daily. “Nothing good comes out for this for the consumer. I think you’ll see businesses that will have to pay the taxes raise their prices by anywhere from 15 to 25 percent because not only do they have to cover the tax for the state their order is coming from, which is usually eight to ten percent these days, but they have to cover processing fees and will have other expenses to ensure they’re in compliance.”
Online retailers may face more competition from stores and smaller sellers who are immune from the tax. Larger companies may make the transition more easily, but smaller businesses will probably find it very difficult.
The whole concept isn’t a shock to Hanley but he wishes more thought had gone into the current proposal.
“I’m not so naïve as to think the internet would always be able to escape sales tax,” Hanley said. “ At some point it was going to happen but the way this is being carried out is just wrong in so many ways. If they wanted to do this fairly, dealers would pay the internet sales tax to their own state instead of having us pay it in every state that has a sales tax. The elected officials who put this together figured that if it’s spread around, it can’t come back to haunt them. It’s sort of like ‘they didn’t vote for us, so we can’t get in trouble’. It’s sort of like 1776, taxation without representation.”
Unlike the Senate, House members seem to be more cautious, with committees set to look at the overall impact before any vote is taken.
Effect on Buyers, Sellers
Leighton Sheldon of Just Collect, another major online seller who also does a few major shows each year, agreed with the notion that it was another unnecessary intrusion on business and indicated collectors may be more cautious when buying but he doesn’t anticipate a drastic change.
” I don’t think it will be an issue for us in the near future,” he said. ” However I do think consumers will have more of a reason to buy goods in a brick and mortar store rather than the internet.”
It’s possible customers won’t even blink with the addition of sales tax on their order. When a customer purchases sports cards or memorabilia it is usually not an item they can easily find locally. That means that most customers may not be dissuaded by a slightly higher price. The biggest issue many sports memorabilia dealers are likely to encounter is the new paperwork and documentation required with sales. It is very likely companies who have more than $1 million in sales will need to fill out sales tax forms for each of the states that they do business in. They will also need to be able to calculate the sales tax due for all of these states so that they collect the correct amount from the buyers. Software would likely do that for them but it will have to be implemented.
“The difficult part of this won’t be the tax itself, it’s knowing the regulation and being able to execute what you’re being asked to do as a seller,” Hanley said.
Sports memorabilia dealers may have to upgrade their checkout systems to compensate for this change and may need to consult an accountant to find out what they need to do regarding sales tax. Sales tax often needs to be paid on a monthly, quarterly or annual basis and it would have to be done for each state. How often tax is paid often depends on the amount of revenue for each state and this would require additional calculations.
Many of those who sell online are barely aware of the proposed tax changes.
“I think you’ll see businesses who have been trying to grow their business but have seen their revenue cross that threshold and are now forced to collect sales tax in dozens of states will just say it’s not worth the hassle and get out. Some will just do whatever it takes to stay below that tax threshold so they don’t have to deal with it. I think there’s a huge advantage in keeping your revenue just under that $1 million level.”
Hanley sees the tax as potentially putting a road block in front of entrepreneurs who have built a strong business online.
“The benefit to buying online is that the selection is better, the service is often better and the merchandise is cheaper. I call it the ‘great middleman’. We’ve been able to build our business on that and really focus on the collector. This may mean you’ll lose some of that because of the regulation.”
Hanley isn’t about to close up shop. He’s worked too hard for that and internet commerce continues to carve out a huge portion of consumer spending.
“We’ll adjust,” he said if the bill becomes law. I’ll figure it all out because I love my job. “