Most opponents of H.R. 3179 – that would allow states to require online retailers to collect sales tax – contend that if the bill becomes law, the merchant’s task of collecting online sales tax would be an administrative burden equivalent to a “freight train” for all remote marketers.
Is that necessarily the case? It depends on who you to talk to.
Steve Cates, vice president of ecommerce for b-to-b public safety equipment merchant Galls, said in an email that his company collects tax in more than 25 states. Last year Galls was a division of ARAMARK and collected tax in all required states.
“It is a cumbersome process that requires 8-12 hours per month and many manual processes for our accounting team (this is with several system controls to help on the front end),” Cates said. “The requirements and paperwork for each state is unique and this adds to the complexity and time resources.”
There are more than 9,600 different taxing jurisdictions in the country.
Daniela Saunders, senior vice president of sales and marketing for FedTax, said in an email that H.R. 3179 requires that each state establish a “single revenue authority” so that online sellers would only have to file one sales tax return for each state. The 9,600 tax jurisdictions refer to the number of different sales tax rates in the U.S. (state, city, county), but companies wouldn’t have to file a return for each one.
Most states provide e-file, so postage would not be an issue, Saunders said. “There are many sales tax management systems available which would reduce the effort necessary to file sales tax returns.”
Saunders said ecommerce platforms have started to integrate sales tax management services into their checkout process, making it easy for most online sellers to comply with sales tax laws. Sales tax is usually based on the shipping address, which is already captured as part of any ecommerce transaction. Sales tax rates can be accessed in real-time using a web service or API, or Application Programming Interface.
Gary H. Smith, president of Carolina Cookie Co., has a clear opinion on what H.R. 3179 would mean.
Smith said if his company had to act as a sales tax collector for 9,600 tax jurisdictions, “I might as well close my doors and put 125 full- and part-time people out of work.”
Smith added: “Consider the practical execution and time involved in the collection of these sales taxes. It would likely take my CPA (or an internal staff member) five minutes per report to fill out 9,600 monthly sales tax reports. We are talking about 800 hours a month (5 minutes per report, times 9,600 reports, times 12 months per year, plus $4,320 in postage each month as well. The vast number of taxing jurisdictions requires you to file a sales tax report regardless of whether you collect any taxes or not. And even if my estimates are off by 50%, it is still a small business killer.”
As a small business owner, Smith understands where both sides are coming from on the matter.
“If the state or federal government wants individual business owners to be national sales tax collectors, then they are going to need to come up with some practical method for doing it,” Smith said. “This issue sort of reminds me of the problems with unfunded mandates from the government. Unless you are OK with literally and quickly putting tens of thousands of small businesses out of business, you better find another way to accomplish this goal or leave things the way they are.”