A mess in the making: States Start Discussing Internet Sales Tax Rules
Well, here we go… the Supreme Court has now authorized the 50 states to collect sales taxes from businesses out of state selling to customers in their state, and the states are now moving in to collect. And as we expected, this is going to be a real danger for small ecommerce businesses that don’t have armies of tax lawyers and accountants to keep track of the miniscule-but-enough-to-get-audited amounts they will now owe in each state.
The Utah Legislature passed S.B. 2001 on a nearly unanimous vote and the legislation was recently signed by Governor Herbert. The Utah legislation does not currently provide a small business protection threshold.
That’s going to be a harbinger of things to come. An extra source of revenue will prove irresistible to state lawmakers, and they have little incentive to worry about collateral damage. After all, why would they worry about putting some little mom-and-pop ecommerce store in another state out of business? Other states will probably not be worrying either. This all looks like a setup for a true tragedy of the commons in which the damage wrought by putting out small ecommerce businesses will only be apparent later.
It’s certainly good news for large businesses like Amazon that can easily cope with the new regulation – and were in many cases already collecting sales taxes everywhere anyway because of the physical nexus created by their distribution warehouses all over the country. Complying with any legislation will be a non-event for them – indeed, this will be a welcome high barrier to entry in the ecommerce business that will kill off even more of their competition. For the rest of us, it sucks.