Internet Sales Tax Bill Passes Senate, House Expected to Challenge It
May 7, 2013 2:31 PM
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House Speaker John Boehner now plans to deliver the bill to the House Judiciary Committee
The Internet sales tax bill
passed with flying colors in the Senate
, but the House of Representatives may prove to be more of an obstacle.
The Senate voted 69-27 in favor of the Internet sales tax bill (also known as the Marketplace Fairness Act) on Monday. The Marketplace Fairness Act would allow states to force out-of-state retailers to collect sales tax on Internet purchases -- even if the e-tailer has no physical presence in that buyer's state.
The legislation offers an exemption for merchants that generate less than $1 million in annual out-of-state revenue.
However, many e-tailers like eBay and Overstock.com oppose the new bill, saying that it would hurt small businesses.
Those who are onboard with the legislation include Amazon, which is looking to simplify its U.S. state sales tax payments, and brick-and-mortar stores like Wal-Mart and Best Buy, which have complained about the unfair advantage online retailers have when it comes to the lack of sales tax collection in certain states.
Also, state government's in need of extra revenue like the idea of the new bill. The California Board of Equalization, for instance, said it made $96.4 million in
sales tax on internet commerce
from September-December 2012, which is the first full quarter that the state started collecting.
Back in April, the Marketplace Fairness Act scored a big victory in a procedural vote of 74-20 in the Senate. It even won backing from U.S. President Barack Obama.
While the Marketplace Fairness Act has had an easy time in the Senate, things are expected to change in the House of Representatives. The issue is that Republicans control the House, and they refuse to consider new federal revenue from eliminating tax breaks (which would be part of tax reform).
House Speaker John Boehner now plans to deliver the bill to the House Judiciary Committee.
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5/8/2013 9:45:29 AM
While I agree with much of what you said, your comments on small businesses are incorrect. The bill clearly states it only applies to business consistently selling over 1mil a year. The small businesses will actually get a boost since they still wont have to worry about tax, and can be more competitive.
5/8/2013 11:40:22 AM
I didn't know about the $1mil limitation. That's at least a good thing. However, that's still a pretty big impact. Many small businesses sell a lot, but don't make much profit.
My Mom used to work at a Hallmark store several years ago. They'd sell about $2mil per month, but their profits only allowed for a total of 5 employees, two of which were the owners. The owners also didn't live all that high on the hog, as the old saying goes. Sure, a 6% profit on $2 million is still $120,000 per month, but if you're also paying income taxes (35% federal and 12% state, at current rates in Colorado) on that, payroll taxes on three employees, workers comp and unemployment insurance for three employees, and finally the employees' pay, that $120k in profit comes down to about $5k/month for the owners to live on.
Let's put forward another business model: internet sales. a small internet sales company consisting of the owner and their spouse to handle the management and inventory and one employee to gather the items, pack, and ship. They sell $2 million per year of knickknacks (decorative statues, doilies, decorative pictures, coasters, bookends, etc.) ranging in price from $5 to $100. Knickknacks have a low margin on the internet because there is always someone around the country that can sell them for less. So, they're pulling down $300,000 in margin per year. They also have to pay for IT costs for the web site, employee pay, taxes, and insurance, and business taxes. So, the owners take home, after all taxes, about $100,000 per year. Sounds pretty nice, eh? Not a bad living. Not really rich, but still comfy. They're also working 60 hours a week for it.
All of a sudden, they have to cover an additional $30,000 per year for the software (pretty common cost for business software) to handle the new tax system. In addition, because they now have to charge tax, they lose business. So, now they have to let their employee go, so they're now working 80 hours per week and only taking home $60,000 per year. The owners burn out, the business goes under, and three more people are unemployed and bankrupt.
It's still going to cost many jobs and small businesses.
Prices will rise, because there is going to be additional costs involved. All people, not just the business owners, will have less money to spend. This will cause a slowdown in spending. This will cost more jobs and more small businesses as we spiral down to a lower level of economic growth. (It's not as if we're not hurting already.)
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