PORTAL CFO Blog

Internet Sales Tax Bad News for Small Business Taxes

If you’ve got a small business that sells products online nationwide, despite being physically located in one state, there’s a bill heading for Congress that could cripple your growth opportunities. The worst part is that it’s being touted as a law that could help the brick and mortar side of your business to compete with online businesses, which may mislead some small business owners into supporting it.

Unfortunately, the Marketplace Fairness Act could actually force you to file taxes in 45 different states on a monthly basis. That’s where it really hurts small businesses. The law would force online stores to collect state taxes in any state, as opposed to only the state where they are housed, if their total out of state revenue is over $1,000,000. Unfortunately, with profit margins averaging about 10 to 20 percent in the industry that really does apply to small businesses.

Does a small business making $100,000 to $200,000 have the resources to hire someone to file taxes in 45 different states every single month? It’s hard to imagine that they do, and even if so, it would put a huge dent in their profits. That would restrict growth significantly.

As a sign of just how bad this would be for small businesses, just look at all of the companies supporting the bill. They’re big companies with major online retail operations. This bill would force them to collect and report tax revenue as well, but they are positioned to handle it because they have the resources to do so. They know that small businesses do not and that much of their competition could be driven out of business by this legislation.

The good news is that the bill has not yet passed and could draw enough criticism and protest while it is being discussed to keep it from getting through both the House of Representative and the Senate.

The bad news is that the possibility exists that it does and that small business owners clearly need to be vigilant with regards to this and any other bills that could impact their profitability in the future. With things changing so rapidly in the Internet world, the government knows that it has laws that are outdated and something will probably change in the not too distant future. It’ll be up to small business owners to unite and make sure that those changes don’t unfairly inhibit their growth.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

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