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TheStreet Open House

Small Business Uneasy About Tax Collection Bills

On the other side are in-state sellers and larger retailers with physical locations dotted across the country who sometimes lose business to competitors who don't have to collect the tax. Even if two retailers charge the same amount price for an item, many shoppers choose the seller that doesn't collect taxes to reduce their overall cost.

"It's a problem that needs to be addressed. It's an un-level playing field," says David French, a lobbyist for the National Retail Federation.

And on yet another side, are the state and local governments which stand to collect billions in uncollected revenue if a bill makes it through Congress. States have wanted the tax money for decades and are particularly anxious for it now because their tax revenue is down following the recession and the housing crisis. The payoff could be substantial. In 2012, there was much as $11.4 billion in uncollected taxes on Internet sales alone, according to an estimate by researchers at the University of Tennessee.

DECADES-LONG DESIRE FOR CHANGE

State and local government officials have wanted to change the law for years, even before the catalog boom of the 1980s and the Internet boom of the '90s.

Small business owners have resisted along the way. They argue that the burden of keeping up with the estimated 15,000 different sales tax rates charged by the 7,500 to 9,600 jurisdictions made up of states, counties, cities and towns, is just too much.

They have a point. Knowing how much to tax, and where, can be complicated. For example, Elgin, Ill., a suburb of Chicago, is located in two counties, Cook and Kane. In Cook County, Elgin's sales tax on general merchandise is 9.25 percent. In Kane, it's 8.25 percent. The state's base sales tax is 6.25 percent.

What is taxed also varies widely. In Massachusetts, baby oil is tax-free, but baby lotion and powder aren't. In states including New York, there's a tax on shipping charges on items. Others, including California, don't charge if you get merchandise delivered by the U.S. Postal Service or delivery services like UPS and FedEx.

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