You’re running an online business and things were going great – until you heard about the new online state sales tax, that is. Whether you’re in the business selling local goods, fine
What the new economic nexus concept means: basically, you, as an online retailer, are now required to collect sales taxes on purchases outside of your state. Here’s what you need to know
1. Increased Difficulty to Keep up with the new laws and lurisdictions
One of the main aspects to consider when discussing the new online sales tax is the fact that it does not come with facile logistics. In fact, small business owners are feeling overwhelmed by the new system, given the fact that they must now register and collect tax in multiple jurisdictions – and there are no less than 10,000+ tax jurisdictions in the US.
Keeping up with the new nexus policies in every state is definitely a challenging task, one that might require you, the small business owner, to outsource a.s.a.p. and hire new personnel.
Small Business & Entrepreneurship Council CEO Karen Kerrigan explained in a recent statement: “Small businesses and internet entrepreneurs are not well served at all by this decision. The precedent that a business must have a physical presence in a state before it can be required to collect sales taxes on remote sales was a sound standard, but now has been upended by the U.S. Supreme Court.
The decision will create havoc for small businesses and the marketplace, and opens the possibility that states may use this decision to flex their newfound taxing power beyond internet sales. The fact that small businesses must now act as tax collectors for thousands of separate state and local jurisdiction is outrageous.”
2. Higher risk of being audited
Deadlines are everything when filing your taxes in – and with more jurisdictions to take into account, the more likely you are to miss the deadlines or to slip in a small error or two. Some of the most significant audit risk factors are missing your regular software updates, disorganized recordkeeping and forgetting to change rates with the new laws.
Many online business owners are currently opting for accounting software that can help them manage their taxes. Fact is, keeping up with the new requirements can be overwhelming, which leads us to the next point: increased expenses as a result of hiring much-needed accountants and sales tax experts.
3. Increased expenses and higher prices
If new software to keep up with the new sales tax system weren’t enough, one of the significant extra costs you will probably have to face is the cost of hiring a few new experts. From accountants to sales tax experts, you can expect to spend more money than you did last year.
Since being audited is definitely not desirable, outsourcing for help might just be a business-saving idea, even if it comes with a price. Experts agree that the new system will likely lead online retailers to increase their prices, leaving the customers to bear part of the new sales tax burden, whether they’re gift shopping, opting for services or purchasing handmade goods online.
Robert Schulte, Senior Sales Tax Auditor for the State of California, details: “The Court breezily disregards the costs that its decision will impose on retailers, especially small businesses. Correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers.
Over 10,000 jurisdictions levy sales taxes, each with different tax rates, different rules governing tax-exempt goods and services, different product category definitions, and different standards for determining whether an out-of-state seller has a substantial presence in the jurisdiction.”
As a result of the increased expenses, small business owners will be more likely to struggle, while high-volume retailers, backed up by on-point accounting departments and loaded with resources will have it much easier.
But there is a glimpse of hope: in order to make it a little easier for small businesses in this new climate, the state of South Dakota tried to reduce the challenge low-volume online retailers face by setting up a limit to the economic nexus, which excludes companies that do limited business in their home state.