Remote Sales Taxes and the Death of the Small Business

With more and more people purchasing online instead of at retail stores, the sales tax laws needed to be changed to affect e-commerce businesses and Amazon resellers, but the way this was done has already begun forcing many small businesses to close their doors.  

On June 21st, 2018, in a case titled South Dakota v. Wayfair, the United States Supreme Court ruled that internet retailers who sell into the State of South Dakota are subject to collecting and remitting sales taxes.  Since this ruling, one state after another has joined the ranks of South Dakota in demanding sales taxes from companies shipping to their States.

Had the Supreme Court ruled to allow internet vendors to charge every customer their own state tax rate and pay those taxes to their own state, this would have been a simple process that every e-commerce website could have complied with.  However, the way the laws are written, e-commerce companies must charge the taxes associated with the state they are shipping into and file the taxes with that state. That may not sound too difficult, but then add in the additional complication that many of these states force you to charge the tax rate specific to the city or county you are shipping to and file paperwork each month detailing which taxes need to be sent to each location.  

The cost and time for a small business to comply with these laws is detrimental.  For KarateMart.com, we spent months reprogramming the website to handle the new taxes, as well as a massive amount of time and money consulting with multiple accounting firms, registering for tax accounts with each state and learning how to file taxes with each state and municipality.  These expenses are ongoing with the monthly filings that we must complete.

Perhaps the biggest detriment to these new laws is that WE NO LONGER SHIP TO KENTUCKY.  The cost of time and money to comply with Kentucky's tax laws is disadvantageous to us doing business in that state.  In addition to collecting and filing Sales and Use Taxes with them, they also require us to file an Annual Report, Corporate Income Taxes, Limited Liability Entity Taxes, and Kentucky Nonresident Income Tax Withholding on Distributive Share Income Tax.  We do not have the resources to handle these things in addition to all of the other state tax filings we must do each month.

This is a real problem, but you can help. Contact your local state representative and let them know that this is a problem. With your help, the state governments can change the way remote sales taxes are collected and filed. Until then, you can expect to see more and more small businesses close up shop because they can't afford to comply with these laws.