NEW YORK — Small business owners may be closer to losing an advantage they've enjoyed during the e-commerce boom — being exempt from collecting sales tax in states where they're not located. And they're worried they will have to spend more money in the process.
Under federal law, a state or local government cannot force a company to collect sales tax on a purchase unless the business has a physical presence in that state. The physical presence could range from an actual store to an office, warehouse or distribution center. The sale could be conducted online, over the phone or through mail order.
The arrangement saves money for shoppers who use price comparison sites or apps, and those who spend time surfing for the best overall deal.
But Washington lawmakers currently have several bills in the works that would end all that by forcing companies to collect the tax.
Businesses are split
On one side are small retailers who say they wouldn't be able to bear the costs of collecting the tax and filing reports and tax returns the states and local governments require. They worry they'll have to buy software, hire staffers and deal with the continual hassle of keeping up with collecting tax from states and thousands of municipalities.
Headsets.com, for instance, might have to hire two staffers to handle the administrative work if what's called remote tax collection becomes law, says CEO Mike Faith. The company has operations in California and Tennessee, but sells to all 50 states. Currently, federal law only requires the company to collect tax in those two states.
Faith expects the law would force him to hire workers to help his San Francisco-based company comply with it.
On the other side are in-state sellers and larger retailers with physical locations dotted across the country who sometimes lose business to competitors who don't have to collect the tax. Even if two retailers charge the same price for an item, many shoppers choose the seller that doesn't collect taxes, so to reduce their cost.
“It's a problem that needs to be addressed. It's an un-level playing field,” says David French, a lobbyist for the National Retail Federation.
And on yet another side, are the state and local governments, which stand to collect billions if a bill makes it through Congress. States have wanted the tax money for decades and are particularly eager for it now because their tax revenue is down following the recession and the housing crisis. The payoff could be substantial. In 2012, there was much as $11.4 billion in uncollected taxes on Internet sales alone, according to an estimate by University of Tennessee researchers.