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The Nightmare of Sales Tax for Everyone

States that do not wish to join would also be able to collect taxes, but only if they take certain steps to simplify the tax structure and notify the "remote sellers."

"The burden of having to comply ... with potentially up to 50 different [state sales tax] -- that is a real concern ," Milchen says.

Two big Internet retailers -- Amazon and eBay -- disagree on the proposal. (Amazon supports the legislation, but as it builds out "distribution facilities" has negotiated with state officials, most recently in Indiana and with South Carolina, to delay start dates for sales tax collection. The extensions are also an attempt to give the federal government time to come up with a simplified solution.)

It seems clear sales tax reform is coming closer to a resolution and less clear how many businesses will be affected. For smaller businesses, the big remaining factor is how low or high Congress will set a tax exemption. The exemption is as low as $500,000 in S. 1832, meaning only businesses that have less than that in annual remote sales will be forgiven the charges and calculation time, while other legislation sets that limit as high as $1 million to $5 million.

While the $500,000 exclusion seems high, Aldrich warns of unintended consequences from the legislation, noting that there will be pressure by states to lower that level even further to include more businesses.

"Most of the folks that would be impacted by legislation aren't primarily selling in other states. They're local [businesses], but also selling some stuff on their Web sites," Aldrich says. But selling even one product in another state could mean that the seller has to collect sales tax.

The sales tax issue "strikes at the heart of how do you balance big business with small business -- online and offline. This issue is one that's going to need to get solved," he says.

Small businesses will have to sit tight to see where the legislation settles. Some owners and managers, if they aren't already, should start making sure they have well-kept records of who's buying their stuff -- a good way to start preparing for whatever legislation does pass, Aldrich says.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.


Stock quotes in this article: AMZN, EBAY 
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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