Avoid State e-Commerce Tax

Avoid State e-Commerce TaxThe Marketplace Fairness Act (MFA): a hot point of contention. Here's a quick recap: the MFA would require all e-commerce sites (cheap hosting, dedicated hosting — all sites) to pay state tax on any and all transactions.

The bill includes a clause, in addition, that asks individual states to adjust tax laws in order to make the process of collecting taxes simpler.

On the one hand, gaining sales tax from e-commerce companies can hugely benefit state income. On the flip side, there are some concerns surrounding the MFA's motives.

The Sticky Issue

As stated, this bill could even the playing field between local businesses and major e-commerce players like Amazon.

Amazon isn't the only example, but it's the best one. Here's why: Amazon realizes major profits daily (who in this world doesn't recognize the box with the smile on the side?) but does not have to pay taxes if the company has a physical property in a state.

Let's break this down: if Amazon has a warehouse in, say, New York, Amazon doesn't have to pay state taxes. That hardly seems fair to the little guy, right? Well, that's what a handful of state legislators believe too.

However, some states have actually granted Amazon tax exemptions – that's right, they've given Amazon a major pass. Why? To boost the economy easily and effortlessly. Hmm. Even more interesting is the fact that some of these same states are now PUSHING to collect those taxes. What's going on?

A Tax Debate

Presently, Amazon is supporting the MFA. Why? It's hard to say, precisely, but the motivation seems to be newly developed Amazon software. What does this software do? It helps e-commerce companies collect state sales tax, of course!

There might be another reason, too. Some states have granted Amazon a tax exemption with an expiry date. That date is approaching soon. Are lawmakers simply trying to use Amazon as an example for lost state revenue? Maybe; but if it weren't for state exemptions, state tax dollars could be piling up, so isn't it their own fault?

Should You Be Concerned?

Let's be realistic. Chances are that your hosting company isn't the same size as Amazon. But, you may still have to pay state taxes if you operate online.

If you aren't lucky enough to base your operations in Alaska, Oregon, Montana, Delaware, or New Hampshire (the five states that currently have no sales tax), you need to worry about this added tax if:

  • You have a sales force that travels across state lines.
  • You hire contractors in another state.
  • You employ reps in another state.
  • You promote your business in another state.
  • You purchase or lease property in another state.
Avoid State e-Commerce Tax: What's Next?

How will this all play out for the little guy? It's hard to say. The MFA was created in order to protect smaller businesses, but will it actually hurt those mom and pop shops in the end? It might if a smaller cheap hosting company has to pay the same price as a giant like Amazon.

But, hey, you can always buy Amazon's high-priced tax collection software to make things easier. What do you think about the MFA? Is this fair or really not fair at all? Should Amazon have gained exemption to begin with, or is it all just a bunch of wasted time? Let me know your thoughts below!

Photo Courtesy of ‘Tax Credits' via Flickr Creative Commons

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