The Big Story Blog

As giants battle, a tax view from a small online retailer

Posted at 12:44 PM on November 17, 2011 by Paul Tosto
Filed under: Economy, Taxes

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Wawina is a speck on the map in Itasca County in northern Minnesota. But it's home to Mary Pagel-Boyd and a launching pad around the world for the goods she sells online.

Pagel-Boyd makes and sells leather bags and other crafts from Wawina. As we write today about the giants of online retailing battling it out over collecting local sales taxes, she wanted to make sure we didn't forget the small store owner.

Pagel-Boyd writes:

I am very interested in this topic, because I make my living on line, selling my artisan-crafted custom leather goods.

I sell some items to Minnesota customers, and automatically collect and later remit the small amount of sales tax to the state. However, most of my sales are to the other states with a few sales that export to other countries.

I am curious as to how this collection and remittance could be handled by small retailers like me.

Will merchant services companies like PayPal (which I use for all my sales) have to develop a program to collect the additional $$ at all the different tax rates? Will I (no doubt) be paying more for this additional provided service?

Will there be a uniform tax rate across all states? Will someone in Oklahoma be paying Minnesota Sales Tax or Oklahoma Sales Tax? And who will do all this remitting? You can guess that it would add hours of unaffordable time to my bookkeeping, if I have to divide sales by state, and then send separate payments to each state.

As a small merchant, I don't complain about being a tax collector for my own state, but is this additional collection and remittance of taxes going to make an undue burden on small internet retailers like me?

I do agree that a lot of state sales tax goes uncollected and unremitted because of internet business.

However, I do not believe that brick and mortar stores will see much increase in business if the playing field is made more even regarding the collection of sales tax.

So what should be done? How do you best satisfy the needs of local gov'ts trying to gain tax revenue but not put online retailers out of business?

Pagel-Boyd added:

If on line retailers are going to be held responsible to collect and remit sales tax to 50 states, my thoughts have been that a uniform sales tax rate could be collected and remitted first to the US Treasury or to the state in which the retailer's business exists (in my case, Minnesota) - remitted with a breakdown report of total sales to individual states. Then the Feds or the states would distribute the funds to each other quarterly or annually.

On the other hand, if customers are to remain the responsible parties (which is how it stands now, but no one pays what they owe), perhaps an end-of-year record of on line purchases, a mandated 1099 of sorts, can be issued by credit or debit card companies to the customers and their residing states, forcing remittance of sales taxes owed at the time of individual state tax filings.

Or, will businesses that reside in states with a sales tax going to collect their state's sales tax on all sales, no matter where the customer resides. In other words, will I collect 6.875% sales tax from a customer in Oklahoma who may or may not live in a state that has sales tax, or has a lower rate of sales tax? If he were visiting a brick and mortar store in MN, he would pay MN tax. Will I lose all customers that object to the MN tax rate?

At any rate, it's all a pretty scary conundrum during shaky economic times. Personally, I would not like to have to spend the ridiculous amount of time it would take to remit small payments and reports to 50 different states, or get into trouble with one of them, if I made an error. Plus, any reduction in my sales, of course, would hurt our family tremendously.



About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.