Online Sales Tax Legislation Would Deter Online Sellers and Buyers
By Ina Steiner
Half of the online sellers surveyed by AuctionBytes would stop selling online if required to collect sales tax for every jurisdiction in the U.S. (53%), while 47% would continue to sell online. As more states are joining the online sales tax bandwagon and federal legislation may eventually be passed, we wanted to measure the impact of such laws on AuctionBytes readers.
In the comments of the survey, many respondents said they were small businesses and couldn't handle the logistics or cost of compliance. One seller described the challenge they already face in collecting sales tax in their state of New York:
"It would be a nightmare. I already struggle with the complexity of collecting and paying sales tax in my state. New York has a different sales tax rate for every county. Every time I make a sale in New York (on every site I sell except Amazon), I must charge sales tax, and fill out a complicated form annually and mail along with payment. Often the rate I've charged does not cover the rate that should've been charged. For example, my county's current rate is 8.125%. New York City and the 5 boroughs is 8.875%. I must set up the sales tax rate in advance for all of my listings, since more often than not, buyers pay immediately, whatever the rate is set up to be. So, for me, its already complicated."
Many sellers wrote that they would continue to sell, but would sell differently. One respondent said they would sell online, "but only to people in my state where I already collect sales tax anyway." Another wrote, "Maybe try to sell only to a handful of states where a majority of sales come from?"
Others mentioned they would seek alternative venues, including flea markets. Wrote one seller:
"I would stop selling online at marketplaces completely and concentrate on craft fairs, consignment at gift shops, direct wholesale selling to resellers and downloadable merchandise (craft patterns, in my case). I would only advertise my merchandise on my blogs, my own website, in print magazines (there are still plenty out there, including the e-publications) and accept mail-orders, just like in the old days before the Internet. Over-regulation has always been the death-knell of entrepreneurship and it has traditionally been the small or independent seller who has suffered most. The big corporations can take the financial hits."
Some respondents were optimistic, believing that if they were required to collect sales tax on out-of-state transactions, the collection process would be made easier:
"I'm sure the big online selling sites like Amazon and Ebay would figure out a way to ensure compliance to avoid any legal challenges."
"It would create a bookkeeping nightmare for sure, but I suspect software would develop that would automatically inject the correct tax into the sale. A small seller like myself would be affected in the extra expenses, which would have to be passed on to the buyer."
"I would continue selling online IF there were automatic tax charts in use on the Marketplaces where I sell, and a program to download the tax data into a program to calculate a report for payment automatically. If this is not feasible, it will put us out of business, because there is NO WAY our husband and wife business could handle all the data."
"I'd continue assuming that I fell under a threshold dollar amount - I'm a one woman business that could not handle the paperwork otherwise."
Effect on Product Pricing
We asked sellers if they would make any changes to their product pricing if they were required to collect sales tax for every jurisdiction in the U.S. - 56% said they would raise prices, while 44% said they would leave prices in place. No one said they would lower their prices.
Effect on Buying Behavior
We then asked these same merchants if they would change their online buying behavior if the online marketplaces and merchants from which they buy began collecting sales tax on their online purchases - more than half (56%) said they would buyer fewer items online. Thirty-nine percent said they would buy the same number of items online, 1.6% said they would buy more items online.
Many respondents said they comparison shopped based on the total price, including any shipping or sales tax charges, and said they would continue to buy from the venue with the lowest price, regardless of whether it was online or from a brick-and-mortar store.
Other responses included the following:
"I would definitely be shopping around for the best price so if tax is forced... that could hurt someone's possible sale to me."
"One reason I buy online is because I need to save money. It irks me when I buy at a grocery or chain store and I keep track of my total as I'm putting things in my cart to stay within my budget and then at checkout, I'm socked with an extra $3 or $4 over and above my budgeted amount in sales tax. Our state (UT) has a confusing tax rate schedule, charging different tax rates for different counties. Instead of there being a flat tax rate, grocery and food items are taxed at a different percentage than commodity items, so not being good at math, I can never keep track of how much sales tax I'll really pay at checkout. It just gets too confusing. So paying sales tax online in states where I don't reside will remove much of the advantage of buying online."
"I rarely shop in local businesses. It's just easier and faster to find what I need online, and usually at a better price."
"I'll buy where ever the prices are cheapest."
"still buy on basis of lowest price + shipping whether online or brick and mortar."
"If after all the charges, I can get it cheaper online, then yes, I will still buy from online merchants."
"It all comes down to price which includes shipping costs. If I am being charged tax at the rate for the two states in which I have presence and I can buy it cheaper in a B&M I would do that anyway for instant gratification."
Thirteen percent of respondents sell online and have a brick-and-mortar store(s), while 87% sell online and do not have a brick-and-mortar store(s).
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About the author:
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to email@example.com.
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