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KalioCommerce Blog

The Taxman Cometh Part 1

There has been big news regarding the Internet Sales Tax Bill, also known as the Main Street Fairness Act that is front and center on the minds of online retailers and how it will impact their businesses.

Quite frankly, passing the Main Street Fairness Act bill will require a lot of work and a lot of cost! While we hope the House dramatically simplifies the requirements for online retailers, Kalio already did the work to be ready for a full-blown sales tax integration.

Background on the Main Street Fairness Act

About ten years ago a number of big box retailers, including Walmart and Target, began pushing Federal legislation that would require internet (and catalog) merchants to collect sales tax on all transactions that ship to places where a sales tax is due. Their bill, called the Main Street Fairness Act, has been voted down many times over the years in Congress.

The Senate took up this bill about a month ago. The Democratic leadership scheduled it for a vote without any debate or allowing any amendments. It passed with 68 votes.

The “pro” side of this bill focuses on the “unfair” advantage internet sellers have because they don’t have to collect sales tax. They also have stated that it will be “easy” for retailers to collect the tax because each of the 46 states with a sales tax will provide their own “free” software for tax calculations to merchants. However, it’s not as ‘easy’ as they make it seem.

The bill the Senate passed requires retailers to collect and remit sales tax in 46 states to 7900 taxing authorities (many counties and cities have an additional sales tax on top of the state rate) and to 551 Indian tribes. This doesn’t sound very ‘easy’ to us. Note: The bill exempts retailers with less than $1MM in annual online sales.

How does this affect online retailers?

All of these requirements will mean time and costs to online retailers. Let’s face it,online retailers will NOT try to directly interface with the 46 different “free” software applications offered by the states. It is just too complex. Retailers will instead use one of the tax rate aggregators that provide this service.  Aggregators require that the retailer pass information about all of the products and services that are on an order. This information includes whether or not a particular item is taxable in a particular jurisdiction. Of course, some items are taxable in one jurisdiction, but not in another. The work to figure out whether an item is taxable falls on the retailer, not the aggregator.

Keep an eye out for Part 2 of this post on what other costs a retailer may incur include...

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