E-Commerce Times Talkback
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In recent months, a few large e-tailers, including Target.com and Walmart.com, started charging sales tax on purchases made through their sites. If more e-businesses hop on the bandwagon in coming months, the trickle may become a trend. The timing certainly seems right: With many state governments facing record budget deficits, pressure to levy sales tax online is likely to increase. The big question is whether or not e-tailers are ready for the legal labyrinth that awaits them.
So what is the general feeling? Should smaller online stores be charging sales tax on orders originating outside of their home state?
As an online store owner, here's the problem I've having with this story and the associated concerns... basically, Target.com and Walmart.com should have been paying taxes in states where they have nexus all along... without question. This is just something basic that their tax accountant should have cued them into when they first entered the game, since the idea of charging tax where you have nexus is something that was figured out back in the early days of printed catalogs and even television mail order.
My company, The Gag (www.thegag.com), is based in Wisconsin, but do business all over the world... however, it only took one phone call to a state government office to confirm that we had to collect taxes on purchases made by Wisconsin residents... easy stuff. Now, if I happen to open up a new warehouse in another state, say California, I would know to start collecting California sales tax as well because I now have nexus in that state.
How on Earth did Target and Wal-Mart ever think they could just not pay taxes at all because they were online? E-commerce is just a slicker mail order catalog... it's not that hard!
And now that charges are being brought up on those two because they weren't paying taxes before, we may end up with a really complicated system whereby we will have to pay taxes in every state... all because these guys thought they didn't have to pay it at all. Nice job, guys... the small business owner thanks you.
How many years has E-commerce been in place? At most 10 years. By all historical terms it's still an emerging industry! As the article says, taxation won't be enforced in the near term, but I think eventually it will. It really depends on which lobby groups are stronger to sway votes in the Capitol. Take a look at the mature communications industry, more specifically, the long distance companies. They are required to collect taxes from every terminating number location. Imagine the complexity of identifing the correct tax code for each tax jurisdiction. Customers just accept it and probably don't even take notice.
When a similar law takes hold for E-commerce, certainly, operating costs will increase for E-commerce companies. So, the natural evolution from SMALL to BIG business will take hold. Also, new supporting industries will open up with new models to support taxation laws. It's just a natural maturing of any industry. Just be glad that it's still in the early stages.
What is to stop a company from setting up a skeleton office in mexico or some other off-shore location like puerto-rico in order to avoid heavy sales tax? Just make up some shell of a foreign corporation and sell things without sales tax.