The Marketplace Fairness Act winding its way through Congress would require online retailers and other "remote" businesses to collect sales taxes, but it would exempt small businesses. It should come as no surprise, then, that nobody seems to agree on the definition of "small."
Global auditing giant KPMG's venture capital practice recently surveyed about 900 investors and entrepreneurs participating in a webcast. KPMG found that less than a third, or 31 percent, agreed with the $1 million per year in revenue threshold included in the bill that passed the U.S. Senate in May.
About 33 percent thought it should be $5 million, and one-quarter said $10 million or more.
Advocates of raising the $1 million threshold say a low threshold would put many online and other “remote” retailers out of business due to the administrative burden of collecting sales taxes in the roughly 10,000 different U.S. tax jurisdictions. “Each tax jurisdiction not only has its own rates, but also its own rules about what is taxable and what isn't, plus varying tax holidays,” wrore Terri Alpert, founder of Uno Alla Volta and The Artisan Table, two catalog retailers based in North Branford, Connecticut in the Hartford Courant. “Having the computer equipment and personnel to handle this extraordinary taxing process would add substantially to the cost of doing business.”
Alpert suggests that many small online retailers will simply close if faced with such enormous burden. “To make the marketplace really fair, Congress must reject this bill and instead create nationwide standards for what is taxable, require one rate per state, create one tax return, develop uniform tax holidays and allow audits only by the home state,” she adds.
Supporters of keeping $1 million threshold point out, however, that small brick-and-mortar retailers already have to collect sales taxes—so it’s unfair to not expect small online retailers to do the same. “We are losing the face of retail on Main Street,” Erin Calvo-Bacci, owner of Bacci Chocolate Design and The Chocolate Truffler, said in a new video produced by the National Retail Federation.
Interestingly, the small business exemption appears likely to disappear entirely from the U.S. House version of the Marketplace Fairness Act. According to the House Judiciary Committee’s newly released principles on the Internet sales tax bill: “Laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.”
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