Will Sales Tax Hurt Internet Sales?

Very soon, Internet retail companies will no longer be exempt from collecting state sales tax. Upstream Commerce did a nice job in this article describing the coming change and several ramifications of the change:

1. Tax tracking systems will be expensive and complicated.
2. The exemption guidelines could be altered once passed.
3. Internet business development will be dampened.
4. Consumers may turn off to online shopping.
5. Competitive pricing strategies may come into play.

Here are my pricing based perspectives on these 5 points.

1. Unfortunately this will be true. Amazon will become an even bigger behemoth because it will be very difficult for smaller companies to comply. It will be easier to become an Amazon partner.

2. It’s fair to say that taxes, fees and government spending will always go up.

3. Although probably true to some extent, this won’t be a big effect. See the answer to #4 for more details.

4. This is probably the issue most worried about, and least likely to have a huge impact. The question is why do people shop online? Certainly some people buy online for better prices, others shop online for convenience, still others for the huge selection of products they can’t find at local stores. My gut says that number of people buying online just for better prices is relatively small. Combine that with the many studies that show people rarely use fees (sales taxes) in their decision making and it seems unlikely adding state sales tax will have much of an impact.

5. I’d like to believe that competitive pricing strategies are always in play, but we know better. This shock to Internet prices may cause Internet retailers to focus more on pricing, prompting new and hopefully better pricing strategies and implementations.

Yes, taxing Internet sales will impact the markets, but probably not the way most people think. The Internet is part of our lives. A small increase in fees will not significantly change our purchasing behaviors.

How does this effect you and your business? Probably not much. My suggestion, don’t worry about it. Focus on building and capturing value. You will get a much better return on your time.

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  • Reply SRWilson January 16, 2012 at 7:23 pm

    FYI: I just wanted to let everyone know that the “tax tracking systems” you refer to claiming them to be very expensive is absolutely false. The opposite is actually true. Small businesses will finally shed the restrictive burdens legacy tax systems and procedures currently place on them. Modern technology today freely on the Internet is available to businesses of all sizes. By enabling modern technology businesses can now participate in a simplified tax system saving them from having to pay to frustrate their bookkeepers and accountants. Not only is sales tax easier to process in home states, but 24 states total have simplified their sales tax definitions, rates and remittance requirements. Many more states are in the process of doing the same as current legislating granting States’ rights to collect sales tax legally due will requires such simplification standards. 24 States now have one simplified e-File return specifically for sales tax. As more states simplify and automate their remittance procedures there will be only one automated return for retailers to worry about.

    And yes calculation is actually easier than processing shipping. Any sales tax rate can easily be applied to any transaction faster than a human can blink an eye (that’s thirteen milliseconds).

    Integration is also easy as many online shopping platforms and carts already have integrated this service for merchants, FREE.

    Reactive thinking will certainly retard businesses from excelling in the marketplace. It is time for businesses owners to take a progressive stance enabling modern technology. Modern technology that will remove audit liability, provide automated current rates, definitions and remittance all for FREE removing legacy burdens so dearly being grasped.

  • Reply SRWilson January 16, 2012 at 7:25 pm

    In regard to pricing. Since the service is free and actually removes administrative burdens from business it would be fair to say that pricing will remain unchanged and actually become more competitive. After all that is common when costly barriers are replaced by FREE modern technology.

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