Tax collection laws could harm small e-commerce businesses

Consumers may soon need to pay taxes on internet purchases.

One reason consumers are driven to find bargains from businesses that accept credit cards online is that these companies, for the most part, do not collect sales tax. But in the last year, state governments and brick-and-mortar businesses are setting their sights on eliminating that loophole.

Brick-and-mortar businesses claim that they must raise sale prices to account for a percentage of the transaction that must be set aside for state sales tax. Meanwhile, most e-commerce businesses can charge lower prices because they don#039;t have to account for tax collection.

Many e-commerce customers are unaware that, at the end of the year, they are expected to pay a use tax, which is usually equal to their state#039;s sales tax, on any goods they purchased online that were not taxed.

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California, already financially strapped, drew the ire of in-state online businesses last summer when it enacted a law requiring them to collect taxes from customers. The state estimated it was losing $200 million each year in taxes that were not levied against e-commerce sales.

On a national level, the Main Street Fairness Act of 2010, which would have allowed states to collect sales tax from online businesses, failed last year in Congressional committee. The Marketplace Equity Act, which essentially mirrors its predecessor, is working its way through Congress now.

The bill features a tax exclusion for online businesses that generate less than $1 million annually. But Brian Bieron, eBay#039;s director of government relations, told Politico, “Both of the Internet sales tax bills introduced in this Congress fall far short of protecting small business retailers based on existing small business definitions.”

Many small businesses claim they lack the resources required to organize and collect taxes from consumers in the 50 states, their various municipalities and Washington, D.C. These businesses should conduct a payment processing review to determine whether they have the means to streamline their existing payment platform with a sales tax calculation program.