With Marketplace Fairness Act, online retailers may have to charge state sales tax

On May 6, the U.S. Senate passed a bill that would allow states to collect sales tax from online retailers. President Barack Obama has also expressed support for the Marketplace Fairness Act, which is now awaiting a vote in the U.S. House of Representatives.

Currently, states can collect state sales tax only from businesses with a physical presence in the state.

"The positive effect is that it levels the playing field considerably between online sellers such as Amazon and brick-and-mortar stores," says Dr. Bruce Domazlicky, professor of economics at Southeast Missouri State University. "The online sellers would now have to collect the tax and thus no longer have the inherent advantage they now possess. It might cut down on the practice of 'showrooming,' as it is called, where customers go to a bricks-and-mortar store for information on a product and then purchase it online to avoid the sales tax."

Businesses with less than $1 million in online sales would be exempt from the state sales tax act. For those who would have to deal with state sales tax, the extra burden may be more than they bargained for when they began selling online.

"The negative effect would be the increased difficulty for small businesses to sell on the Internet since they would now be required to collect and send to appropriate jurisdictions the required sales tax," says Domazlicky. "I would assume that there would be software available to businesses to help with the process, but it would create additional headaches trying to keep track of where sales are going, paying the correct tax, etc."

Noelie Schafer, owner of Smitten Polish, makes nail polish in her Cape Girardeau home and sells it online, shipping all over the country and even overseas. She says she's below the $1 million mark, but works with bigger online retailers and can see how a state sales tax requirement would be problematic for them.

"For the big, mega-companies, I'm sure that they already have an army of accountants and tax experts at their disposal, so this would just be one more piece of the giant tax puzzle they already have to deal with," she says. "But for the medium-sized businesses, I believe this is going to create a pretty big burden. I've read that the states would have to provide free software to help calculate the taxes owed, but that still seems like something that is going to take a fair amount of man hours to process. I'm imagining that a lot of companies will actually have to hire someone to manage this or perhaps add hours to existing employees. Either way, I certainly don't think it's as simple as they want to make it sound."

Claire Bruce, owner of Sloan & Themis, has a storefront in downtown Cape Girardeau as well as an online store to sell her vintage and handmade jewelry. Having once worked for a corporate retailer, she remembers that sales tax was a "tricky, very sticky thing," and the company had an entire department well versed in handling sales tax for all states. If small online retailers have to start charging state sales tax, she believes they will be put at a disadvantage: They wouldn't have easy access to resources that would give them the ability to comply with tax codes throughout the U.S.

"What the legislation is in effect doing is adding another intricacy into the business. Most business owners in Missouri are not experts in tax law (in other states)," she says. "It's really hard to justify adding in resources -- employees, hiring a company or investing in software -- to help facilitate those taxes. I think it may work against individuals who want to grow their business outside the community, outside their small town."

As for the customers, Schaefer doesn't believe an online state sales tax would make much, if any, difference in people's shopping habits.

"Some folks I know have expressed concern that ultimately less people will shop online -- if they have to pay sales tax as well as shipping, then they might as well just shop locally," says Schaefer. "I suppose there might be some truth to that, though I think that people are so used to shopping online now that I don't think there's an accurate way to predict whether it will have that effect or not."

We live in a business world where having an online presence is becoming increasingly important, and it's a way to meet customers' needs, near and far, Bruce says. An online state sales tax could hinder the growth and customer service of small businesses.

"As a small-business owner with a business that's growing ... my business goes from being something I can manage myself, maybe with limited support staff, to something that accounting just increased by a factor of 48," says Bruce. "I have a lot of questions as a small-business owner. What is this about to get me into?"

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Missouri loses about $468 million per year in uncollected sales tax on purchases made through the Internet, according to researchers at the University of Missouri Truman School of Public Affairs.