On the heels of its failure to pass comprehensive gun control legislation, Congress has come together in a bipartisan fashion to strengthen sales tax provisions on online retail transactions. This policy, long sought by some lawmakers, would effectively tighten a law that is technically already on the books.
According to The Wall Street Journal, most states require their citizens to pay taxes on any purchases they make online. However, due to the relative opacity of the law and poor accounting standards, many citizens in the United States don't actually pay these levies. The legislation that is moving through Congress – with an explicit statement of support from President Barack Obama – would push state governments to take a more proactive approach in assessing the sales tax.
While it's unclear what the economic impact of this new law will be, a Q&A compiled by the Journal included some of the concerns of the small business community. One fear is that, in order to comply with the regulations, companies with limited resources will be forced to upgrade their computer systems to keep track of all out-of-state customers. Additionally, they might be subjected to costly state audits in the event that they fail to apply the tax correctly. Larger retailers, the source reported, might have a financial advantage that allows them to benefit from the increased scrutiny on their smaller competitors.
In an interview with NPR, Bill McClellan, a senior official with the online business advocacy group Electronic Retailing Association, argued that company owners may be unable to expand their firms when faced with the onerous responsibilities of tax collection.
"There are 9,600 taxing jurisdictions in the country and for a small remote retailer to go out and be responsible to collect and remit sales tax is an administrative nightmare," he told the source.
This legislation represents another risk factor in a heavily consumer-based economy. Investors may want to consider ways to generate income, like cash flow real estate, to hedge against any financial turbulence caused by yet another tax on hard-working businesses.