By Joe Jarvis
Small businesses aren’t disappearing, they are just moving online.
The American dream is alive and well and more accessible than ever!
Even while Amazon takes 44% of e-commerce sales, half of those sales are through small businesses using Amazon as their platform. Over one million small and medium-sized U.S. businesses sell on Amazon.
Owning an online business, you don’t need the capital to open a store and pay the overhead on a physical location. Countless people are finding freedom in this changing economy. This includes the couple used as an example in The Daily Bell’s free guide on how to make and stick to a two-year plan.
When another family could not get pregnant, they found that selling collectible cards online was the easiest way to raise the $35,000 it costs to adopt a child. Here’s what they said before the decision:
If the Supreme Court reverses its precedent and allows states to enforce sales taxes on online sales, it won’t affect the Amazons, Walmarts, Targets and other big retailers. They have all become “multichannel” retailers selling from their physical stores and distribution centers in almost every state and online. They collect and pay state taxes because of their physical presence in those states. For these large retailers and many other multichannel sellers, tracking the complexities of taxes across the 45 states that levy sales taxes is just another back office process, and they have the staff and budget to do it.
For us, an Internet sales tax would mean the certain end of our business. We can’t afford specialty software to help us manage taxes. We don’t have the staff, lawyers or accountants.
It’s just us.
If state sales taxes are imposed, we would also find ourselves competing in many markets with unsophisticated sellers, often high school students, as well as unscrupulous sellers who wouldn’t pay the tax and would consistently underbid our pennies-on-the dollar margins.
Worst of all, we would be living under the constant threat that out-of-state tax agencies would turn our lives upside down with an audit. We would be defenseless against the tax authorities of California or New York.
A Supreme Court decision just royally screwed small online businesses.
In a 5-4 decision Thursday, the Supreme Court ruled that a physical presence in a state is not required for the state to charge sales tax on online purchases.
Previously, only companies that had a physical presence in the state had to collect sales tax when shipping an item to a customer in that state.
For instance, if you bought something from Walmart.com, you had to pay sales tax, because there is a Walmart down the road.
But if you bought something from an Etsy.com artist five states away, that small business owner did not have to collect sales tax. Technically your state expects you to report the purchase, and pay up, but almost no one does that.
The court did not split along party or ideological lines. Trump’s Supreme Court pick, Gorsuch, cast the tie-breaking vote to drop the guillotine on online small businesses. Congress is equally divided on the issue, again not along partisan party lines.
Trump praised the decision:
On Thursday, the president exulted. “About time! Big victory for fairness and for our country,” he said in a tweet. The Wall Street Journal reported in April that TrumpStore.com failed to collect taxes for more than 40 states, including New York, where the flagship store is in Trump Tower.
Congress could still act, with its power to regulate interstate commerce, to eliminate the power to collect out of state sales tax or require exemptions for small online businesses.
But as it stands, states can now enact crushing regulation on online retailers. These online businesses now must know each individual state’s tax rate, as well as exempted items, and face the possibility of 50 different government audits come tax time.
As shares of Etsy and eBay fell, unsurprisingly, the stock price of a new business that offers tax compliance software rose.
Perhaps the biggest boost came to a newly public company called Avalara Inc. that makes a type of tax-compliance software many smaller merchants may now need. Its shares finished up more than 14%.
So now online retailers have to spend more money complying with tax authorities instead of hiring more workers, expanding their product lines, marketing, research, or any other actually beneficial expenditure. But worst of all, as any small business owner knows, this will steal more of the most precious resource: time.
Add in the fact that many states allow municipalities to create additional sales taxes, and you are left with a Kafka-esque nightmare for any business too small to afford the new software.
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Steve Delbianco, president of NetChoice, an e-commerce trade group, said Congress should act immediately to create rules for states and retailers.
“A brick-and-mortar business won’t have to comply with the differing rules of over 12,000 tax jurisdictions, or integrate costly and complex tax software into its operations,” Mr. Delbianco said in a statement. “But small web businesses will.”
Justice Kennedy saw it differently. “There is nothing unfair about requiring companies that avail themselves of the states’ benefits to bear an equal share of the burden of tax collection,” he wrote.
So he admits that it is a burden. And yet instead of the government removing the burden on all, they simply shoulder more people with more complex burdens!
Always remember that is what the government sees as equality: not lifting people up, dragging people down.
Now, state residents with greedy legislatures should be up in arms, demanding that their representatives back off their abuse of online retailers as well as online customers–more than half the population.
It Is Still Up to the States
States have been bitching and moaning about the “loss of revenue” from online sales. A more truthful way of saying this is, “The internet’s making it harder for us to rob our citizens blind!”
Of course, the states play their violins while pointing to the poor brick-and-mortar retail stores that are forced to compete with the online stores that don’t collect sales tax.
And yet, the states are the ones forcing them to compete on an uneven playing field!
Any state that actually cared would eliminate its sales tax to immediately relieve the brick-and-mortar small businesses.
Five states already have no sales tax:
- New Hampshire
- Alaska (allows local sales tax)
Don’t Tax Online Businesses, Repeal Taxes on Brick and Mortar!
It is absurd that taxes keep going up and up, and what do we have to show for it?
Never do state governments actually make a sincere effort to cut their budgets. The burden of their grandiosity and waste always falls on your shoulders. This is no different, whether you are an online shopper or an online retailer.
Enough! This is 2018. Like it or not, online retail is the future. And states should not be destroying businesses and jobs because they want to squeeze the taxpayers more, more, MORE!
Brick and mortar retailers should not be demanding that their online competitors be chained. They should be insisting that the government cut their shackles!
This could be a meaningful moment. This could be used a the catalyst to shift away from a force and geographic-based system of government taxation.
If states think they provide such amazing services to the people, then why do they have to the fund themselves by force?
Offer the services for a fee! Send out the tax bills and let residents check which services they will be paying for and receiving, and which they are not interested in.
Still not enough money? Then the legislators can have a freakin bakesale! Figure it out, everyone else does.
Why is it that the people are not only burdened with providing for themselves and their family but then also have to cart the bloated government on their backs as well?
Do we want a strong economy, good jobs, economic freedom, and individual opportunity?
Time to tell the states to get the hell off the backs of the working people. Let the business owners–both online and physical–provide jobs, and services that people actually pay for voluntarily!
You can read more from Joe Jarvis at The Daily Bell, where this article first appeared.