To Tax or Not to Tax, that is the Question…

For quite some time now there have been stories about States changing their sales tax laws in an attempt to collect sales tax from online merchant sales. More recently the buzz about this topic has taken a more serious turn with companies such as Amazon making major business decisions in response to collection attempts, as well as legislative maneuvers by organizations such as the Direct Marketing Association (DMA). From the look of things, this “conversation” is going to continue for quite some time with the likelihood of a major increase in tension levels for all involved.

What does all of this mean to the average shopper and ecommerce business owner? As with most things, there are a lot of factors that impact a variety of people in many ways. Based on the information I have read, I have developed some basic thoughts about both sides of this debate. Here is what I have put together:

If I put myself in the shoes of the State, I can certainly understand their motivation for seeking to secure additional sales tax revenue. Everywhere you turn these days there are stories of massive budget shortage and cuts in basic state services like education. If the states are successful in collecting sales tax from the ecommerce companies selling to their residents, then their funding shortfalls may have less distance to fall and citizens could likely reap the benefits through maintained state services.

Being in the business of ecommerce, I also understand the many implications of this change to online retailers. There are, of course, the obvious factors such as a decrease in the customer incentive to shop online. If they have to pay sales tax, they may as well go to the mall and pick it up today rather than waiting for a shipment to arrive. Beyond this concern there are some other implications. If you take a look at the basic business model of ecommerce companies, the lack of sales tax is a significant factor to how the company works. Just like any other mechanism, if you change a major component it impacts the whole machine. Changing something like the Sales Tax factor could be like taking the back wheel off a bicycle and telling the rider to pretend it’s a unicycle. It was not designed to function as a unicycle, so trying to ride that way is going to cause some problems…

Regardless of how I process the information, the end result seems to land in the same place. There is no definitive correct answer to the debate. Both sides have compelling reasons for their actions and the application or non-application of the Sales Tax collection on ecommerce sales hurts one side while helping the other. Perhaps we should apply the democratic process and let the people vote… in the end the final decision most directly impacts them, their shopping options and their government funding. 

For some additional thoughts and perspective, check out these articles:

Internet Sales Tax Impacts Amazon's Affiliates

DMA Legislative Action Center

Sales Tax on the Internet

Small Business Healthcare Tax Credit

If you own a small business your mind probably reels with a variety of information tidbits all necessary to keep you company moving forward. Like a well oiled machine you process requests each day that make adjustments to your future planning and forecasting. This level of functioning is most likely second nature to you which means that any major change in your mental machine can throw a wrench in the workings of your day to day progress and forecasting.

With all of the changes to the tax credits and healthcare details in 2010 I suspect that many a business owner found their mental machines grinding through a few wrenches. A lot of people  that I know have been particularly vexed about the health care credit and how they can determine whether or not it applies to them or is to their benefit. To help clear the air, I did a little research and here is the simple version of what I found.

You may qualify for the credit IF:

• You (the employer) pay for at least 50% of the coverage costs of some of your employees based on a single person coverage rate.

• Your business employs less than the equivalent of 25 full time workers.

• The average annual wage paid by your company to employees is less than $50,000. (The key word here is “average”.)

Click Here for a Quick Qualification Worksheet

Things to Note:

• Both taxable businesses and tax exempt organizations are equally eligible based on the criteria above. The difference is in the percentage of credit given to the business/organization. The maximum credit available for a taxable business is 35% of the premium costs paid by the business in 2010. For tax exempt organizations the maximum credit is 25% of the premium costs paid in 2010.

• If you qualify for the credit and wish to claim it on your 2010 filing, use Form 8941.

For additional information check out these helpful tools:

• Quick Fact Sheet

• Sample Scenarios

• Form 8941

• Video Tutorial