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The Nightmare of Sales Tax for Everyone

Stocks in this article: AMZN EBAY

This story has been updated with information about the tax exclusion limit set by Senate bill 1832.

NEW YORK ( MainStreet) -- An Internet sales tax has long been a hot-button issue in Congress and industry. But as more businesses embrace e-commerce to sell their goods, states struggle to bring in revenue in a struggling economy and political candidates talk tax reform, it's a button that keeps getting pushed.

It's, at best, complicated. The Supreme Court ruled in 1992 that businesses that do not have a physical presence in the state they sell to do not have to charge sales tax. Yet the ruling, especially as more and more companies sell goods only through the Internet, means an advantage over bricks-and-mortar small businesses that some call unfair.

If a business doesn't collect sales tax, it's the consumer's responsibility to report purchases on their state income tax and pay a "use tax." Proposed laws could change that.

The issue gets even more complicated. If a business does not collect sales tax, it's the consumer's responsibility to report purchases on their state income tax and pay a "use tax," but very few people actually pay it. So the government is once again turning its eye to the issue, looking to make businesses, even those that sell through Amazon (AMZN), eBay (EBAY) and Etsy, among others, charge sales tax.

For independent retailers, the issue is their very survival, says Jeff Milchen, co-founder of the American Independent Business Alliance.

But whose survival? In a sense, the answer is both bricks-and-mortar and online-only retailers: On the one hand, bricks-and-mortar stores with a sales tax are at a disadvantage to online-only sellers; on the other hand, if sales tax reform takes place, figuring out multiple state and local sales tax percentages could be a nightmare for a smaller online business. Big businesses have the resources and capital to put toward figuring out state and local sales taxes; a midsize e-commerce site could go out of business if owners are forced to spend more time dealing with sales tax issues than selling, making or providing services.

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