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What Online Sales Tax Means for Small Biz

By Deanne Katz, Esq. on October 19, 2012 6:46 AM

One of the big benefits for Internet retailers like Amazon is tax free online shopping. But that competitive advantage may soon disappear if Congress has anything to say about it.

Election year politics are messy but both parties agree that it's time to require online shoppers to pay taxes and consequently for online retailers to collect them. There are no fewer than three bills currently in Congress to this effect.

While it may be a burden for large sellers that exist only online the legislation is also a huge boon to small businesses that sell in stores even if they also have online sales.

Consumers view the tax-free sales as a discount even though in reality they're expected to declare the purchases on their tax returns, reports Reuters.

Without that 'discount,' online retailers have to work on a more even playing field in terms of price. That means customers may not automatically turn to companies like Amazon as a cheaper option in the future.

That benefit to small businesses is obvious but just as important is that this measure makes online sales for existing stores an easier option as well.

If you own a brick-and-mortar, you have to collect state sales tax on all your sales. Even if some sales are made online, if your entire inventory comes from one place you generally have to pay taxes on all sales which means you have to collect them on every sale.

It's already easier to calculate different state sales tax rates than it used to be but if Congress passes one of the three bills it's considering that will streamline the process even further.

To make it more reasonable for predominantly online retailers to collect taxes, the proposed bills require states to adopt universal sales tax rates within a state, reports Reuters. Currently some states' sales tax rates vary by county making it hard to retailers to know how much to charge.

That change would make it easier for any online seller to collect sales tax even if most of the business is done in-store.

The end of tax free online shopping isn't going to be a cure-all for small businesses but it could do something to level the playing field.

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