Costs of compliance would exceed profit margin, according to company's calculations
NEW STANTON, Pa., May 6, 2013 /PRNewswire/ – The Marketplace Fairness Act will require companies to comply with the sales tax laws of all states they ship to if it is passed into law. At present, companies only collect sales tax for states where they have nexus, such as a store or warehouse. Online Stores estimates its cost of compliance will be $360,000 on sales of $30m. This amount is greater than the average net profit the company made over the last 3 years. The net additional sales tax revenue Online Stores will collect is estimated to be under $400,000. Online Stores believes the impact of this law on small retailers will result in the closure of 9,000 companies and the loss of 200,000 jobs.
Online retailing is a competitive business and net profit margins are typically in the -4% to +5% range. Amazon, the market leader, makes 1% net profit. Compliance cost for many companies under $20m in sales, according to Online Stores, Inc.'s calculations, will be greater than their profitability. Over 9,000 companies will fail, including almost 30% of retail companies under $10m. That equates to 228,000 lost jobs at retailers, catalog and other companies that operate a website. The estimate does not include loss of employment at suppliers and shipping companies.
"We think this is an undue burden on smaller retail businesses," said Kevin Hickey, CEO of Online Stores, Inc. "State sales tax is very complicated, there are over 140 conflicting and overlapping codes for clothing and footwear alone. Knowing which items are taxable often goes to 'case law' based on sales tax appeals and can change at any time for any state. If we get the classification of a product wrong and we do not charge sales tax correctly, the states have Draconian power to make us pay all the uncollected taxes with penalties and interest. This law will be a major burden for a large number of companies, and will be a major impediment to new company formation."
Online Stores estimates that Avalara, the market leader in sales tax calculations, will need to bring over 20,000 new customers online to collect state sales tax to support the 90 days advance notice period proposed. Online Stores thinks it is unlikely any company can grow its customer base by 1,000% in a few weeks.
Online Stores suggests exempting businesses with sales under $50m. In addition, companies should have 12 months to comply.
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About Online Stores, Inc.
Online Stores (http://www.onlinestores.com) is an ecommerce company based in New Stanton, Pennsylvania, with 2012 sales of $30 million. The company was founded in 2002 and operates five stores: US Flag Store (http://www.united-states-flag.com), English Tea Store (http://www.englishteastore.com), Discount Safety Gear (http://www.discountsafetygear.com), Safety Girl (http://www.safetygirl.com), and Construction Gear (http://www.constructiongear.com). The company is privately owned and employs 80 people.