09 May 2013

Internet Sales Tax Passes the Senate

No one likes to pay taxes, but it would appear that you'll be paying more when shopping online. Monday the Senate passed a bill that calls for online retailers to collect and disperse sales tax to states where the purchase was made. This means that shopping at our largest online retail partner, Amazon, will be more expensive. Unless you live in a state without sales tax, your dollar will buy less online if the bill passes the Congress.

Here at Grave Distractions Publications, we're opposed to taxes just on general principle. More specifically, this bill will end up hurting small businesses that supply large online vendors. The bill does have a provision that would allow business that sell less than $1 million a year online to be exempt from the legislation. That's a step in the right direction, but companies like Grave Distractions supply larger online retail outlets who do make more than the $1 million cap. The internet sales tax will eat into consumer's purchasing budgets and reduce the amount of products an individual will purchase online. One can expect that sales will be reduced in a direct proportion to the average sales tax rate of all States. According to a 2012 article from Forbes, that rate is 9.6%. Reduced sales equal online suppliers cutting prices to their vendors to stimulate sales which will further erode small businesses' profit margins. Reduced margins will result in small businesses slowing their rate of expansion and reinvestment in equipment and product development. This means that new computer or software upgrade will be out of the reach of some small businesses which will in turn hurt mid and large sized companies.

The above example is the true picture of the much maligned theory of "trickle down economics". Generally when people think of reducing tax rates to stimulate business growth, examples of Wall Street bankers and large conglomerates are used to put a face on the evils of not fairly taxing corporate entities. I would agree that larger corporations don't need any more help from the government to make profits. But when looked at through the lens of a small business that won't be able to afford a new piece of equipment to compete against the big boys, one realizes how damaging new taxation can be.

Another unintended consequence of implementing an internet sales tax will be on the US Postal Service (USPS). If online sales drop, so will the demand for shipping via the USPS. The last time I checked the USPS profitability picture was forcing the service to look at reduced service plans. Reduced online sales might just tip the scales in favor of those cutback.

I will admit that lax sales tax laws for online sales are an unfair advantage some companies have over their brick and mortar counterparts. That advantage online sellers have is exactly what enables companies like Grave Distractions Publications the ability to compete against New York publishing houses. Basically taxing internet sales will take David's smooth stone away during his battle with Goliath. Without that rock, David is left with a sling and a very pissed off Goliath. So email your State Representatives and let them know a vote for internet sales tax is a vote against small business.

No comments:

Post a Comment