Small sellers: What does $1 million in sales look like?

March 19, 2013

There has been a lot of talk lately about the “small seller exception” in the Marketplace Fairness Act, which was introduced last month. The bill says that small sellers don’t have to collect sales tax on online purchases, and it defines “small seller” as a merchant with less than $1 million in annual remote sales.

Some opponents say this threshold is still too low, though—that a seller with $1 million in annual remote sales is too small to handle sales tax.

So, what does a seller making $1 million in remote sales look like? Here a few examples.

Bottled Water

You wold have to sell 166,000 cases of water per yearLet’s say an online retailer is selling 0.5-liter bottles of water in cases of 24. At $6 per case, $1 million is equal to 166,667 cases of bottled water, enough to fill 125 fifty-three-foot tractor-trailer trucks.* That means that if you were selling $1 million worth of bottled water in a year to out-of-state buyers, then you would shipping out an entire truck of full of bottled water approximately every three days.

125 trucks

Shoes

ShoesAssuming the average price of shoes is $50 per pair, $1 million is equal to 20,000 pairs of shoes. To make $1 million selling shoes in one year to out-of-state buyers, you’d need to sell about 55 pairs of shoes per day, every day, for an entire year.55 Pairs of Shoes sold each day

Digital Goods

Angry Birds Star Wars AppMany apps go for about $1 each, so to earn $1 million selling apps, you need to sell at least 1 million apps. To sell 1 million apps in a single year, you’d have to sell 2,739 per day to out-of-state buyers, or slightly less than 2 per minute, every minute, for an entire year.

Conclusion

Any business selling at these volumes must be using some sort of e-commerce platform or order management system, and these systems can be easily updated to provide access to free sales tax management services.


truck*A 53-foot tractor-trailer has approximately 4,000 cubic feet of carrying capacity, with a maximum cargo weight of approximately 50,000 pounds.


Debunking 3 myths about internet sales tax

March 8, 2013

The reintroduction of the Marketplace Fairness Act has resulted in the reintroduction of myths and half truths about its impact on businesses. In this post, we counter the three main fears about collecting internet sales tax.

Fear: Collecting sales tax is too difficult.

Some point to the fact that, nationwide, there are over 9,600 tax jurisdictions, and they argue that online sales tax collection would be so difficult that online retailers would have to hire additional staff to handle it.

Fact: Fortunately, technology provides an easy answer. Sales tax rates are easily stored and maintained in a database—it doesn’t matter if there is 1 rate or 100,000. Databases easily handle tax exemptions, too, for every location. Everything needed to figure out the correct tax rate is already present during an online sale: the purchaser’s address, the sales price, and the type of item being purchased.

Sales tax management services, which offer retailers an easy way to manage sales tax, have already been integrated with most e-commerce platforms, so starting to collect sales tax can be as easy as checking a box.

The proposed legislation is doing its part, too, to make collecting sales tax easy. It requires that states simplify their sale tax laws before online retailers start collecting, lets retailers file one sales tax return per state, and centralizes the registration process. It also requires states to make available free sales tax software for retailers that can work with all states.

So much for the concern over difficulty; what about cost? Sales tax management services are available at every price point—including free. So collecting sales tax doesn’t need to cost an online retailer anything.

And it’s also worth noting that most online retailers won’t have to collect sales tax at all. Only retailers with over $1 million in annual out-of-state sales will be affected.

Fear: This will give local stores an advantage over online stores.

Fact: Actually, it will correct an artificial advantage that online stores currently have, creating a more level playing field for all retailers.

Right now local stores have to collect sales tax while online stores don’t, which gives online stores the appearance of a price advantage of up to 10%. Even when bricks-and-mortar retailers also sell online, it doesn’t change the basic fact that in their local stores, they have to collect sales tax, while online stores don’t.

If the law doesn’t change to keep up with the way people shop, the logical conclusion is that many businesses will elect to only sell online—which would mean no local shopping. Picture your community without a bookstore, clothing store, or electronics store. That’s not what anyone wants.

Fear: This is a new tax.

Fact: If you live in a state with sales tax, you already owe sales tax on your online purchases. If the retailer doesn’t collect sales tax, the purchaser is supposed to pay the tax due directly to the state. In other words, this isn’t a taxation issue, it’s a collection issue.

Most people don’t know that they owe sales tax when they buy online, and states find it almost impossible to enforce their own sales tax laws online. That’s why the Marketplace Fairness Act is needed: to allow states to enforce their own laws and end the sales tax loophole that favors online retailers over local retailers.


Congress shows states some love this Valentine’s Day

February 14, 2013

taxcloud_sweethearts

Congress sent states that have been losing billions of dollars in uncollected sales tax a valentine today with the introduction of the Marketplace Fairness Act, a bill that will give states the authority to require online retailers to collect sales tax.

Identical bills were introduced in both the House (HR.684) and the Senate (S.336). Similar legislation was introduced last year but expired when Congress ended its session in early January.

Momentum seems to be on the side of legislation. Let’s hope it passes quickly!