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The Internet Tax Debate: What e-Tailers Think

The e-tax debate is hitting a crescendo. We've asked four e-tailers what they plan to do about it.

On February 1, five big retailers took it upon themselves to begin collecting sales tax for online sales. The current moratorium on Net taxes expires in November, and states are working overtime to figure out a system for collecting sales tax online. So what are the little guys like you doing to prepare for the conclusion of the e-tax debate? We've asked four e-tailers for their opinions.

Maheesh Jain, CafePress.com
CafePress.com allows individuals and groups to sell branded items online by taking care of all aspects of production, including online storefront development and management, product manufacturing and sourcing, fulfillment and customer service. Jain is a founder of the San Leandro, California, company and its vice president of sales and marketing.

"If the government is going to impose Internet sales taxes on us and others like us, we surely could use some major help implementing it."

What do you think of Internet taxes? Do you think it's just an inevitability, or unfair for e-tailers?
Maheesh Jain: I think it will mostly likely be an inevitability. Since CafePress.com doesn't resell commodity goods that our customers can purchase in an offline channel, our main concern is not whether our customers will be required to pay sales tax, but instead the administration required to compute and distribute sales tax monies to the various tax jurisdictions. The cost of calculating and sending checks to 50 states is much lower than sending checks to over 1,000 municipalities. So opening up sales tax with the current system in place would be disastrous to online commerce.

Do you think charging tax will negatively affect your business? How so?
Jain: We would obviously prefer not to charge sales tax so the overall cost of our products would be lower. However, since we don't sell commodity goods on a competitive price basis (i.e. reselling a pair a shoes online cheaper than what you can buy at the mall), we don't feel charging sales tax will have a huge effect on our business.

Any other comments?
Jain: For many specialty retailers online (such as us), the real concern is the administration of the taxation system. If the localities and states can agree on a standardized system that businesses can easily comply with, then we're not so worried. But if the states were to require online businesses to pay sales taxes based on the current localized tax systems, compliance would be close to impossible--and the system would make the personal tax code look like a piece of cake in comparison.

Karen Booth Adams, PoshTots
Adams is a co-founder of the Glen Allen, Virginia-based PoshTots, an online seller of high-end children's products, including furniture and playhouses. Read more about PoshTots here.

As an online retailer, do you keep up with the Internet tax debate?
Karen Booth Adams: We do keep up with the Internet tax debate, as we are solely an online retailer. We currently only collect sales tax in Virginia, the state where we're located. Since the moratorium is set to expire in November and Virginia is one of the 32 states participating in the Streamlined Sales Tax Project, we've been discussing [the] changes and revisions [we'd] have to make to our Web site if and when new sales tax laws are implemented.

Do you think e-taxes are an inevitability, or are they unfair for e-tailers?
Booth Adams: While I do think that Internet taxes are inevitable, as e-tailers generate a huge tax base which state and local governments are currently missing out on, I do believe that there is an unfairness to the tax. Currently, many smaller brick-and-mortar stores with only one or two locations only collect sales tax in one state, [but] many smaller to midsized online retailers such as Posh Tots have a customer base which includes the entire United States. Under the current sales tax system, we would have to make provisions to collect sales tax in all 50 states. My hope is that when Internet taxation legislation is eventually passed, it will follow the Streamlined Sales Tax Project, which should allow us to levy a pre-set tax rate for each item regardless of the state where the item is being shipped. I would also like to be able to file all taxes centrally. Collecting and filing individual rates and returns to each state would require major modifications to our Web site as well as our accounting system.

Do you think charging tax will negatively affect your business? How so?
Booth Adams: I don't believe that charging sales tax will negatively affect our business. While it may cause some customers to balk, our clientele is used to paying sales tax at their local retailers. If there is any negative impact, it will be because of the rates levied on the items which we sell. If the rates proposed through the Streamlined Sales Tax Project are higher than current individual state sales tax rates, both Internet and brick-and-mortar retailers will initially feel the pinch.

J.S. Fletcher and Kathy M. Newbern, yournovel.com
Fletcher and Newbern, who married two years after starting their Raleigh, North Carolina, business, yournovel.com, have customers fill out a simple questionnaire on their site. They use the information to personalize a romance book, which is shipped to buyers within days. Read more about yournovel.com here.

As an online retailer, do you keep up with the Internet tax debate?
J.S. Fletcher: Yournovel.com became an Internet business in 1996, and we've concentrated on improving our service and product since that time. In our state, North Carolina, we have to collect sales tax and disburse it to the state on a quarterly basis. We diligently collect and report those sales, as we do all our tax concerns, because we use this philosophy: If you aren't paying taxes, you aren't making money. Yet now as the economy worsens, our state and others have looked to ways to increase their revenue. As to keeping up with the debate, we must say focusing on the day-to-day sales and promotion takes up all our time.

What do you think of Internet taxes? Do you think it's just an inevitability, or unfair for e-tailers?
Fletcher: We have the same answer to both questions: yes. Taxing sales raises revenue for states suffering in a poor economy. E-tailers, most of us small, self-employed business owners, have elected to sustain ourselves and have to work hard just to stay in business. Keeping up with, or even just figuring out how to keep up with, paying a sales tax to all states would have a tremendous impact on the scant work force that most e-tailers have.

Any other comments?
Fletcher: If the government is going to impose this on us and others like us, we surely could use some major help implementing it. A much better approach would be for the states to work among themselves on a way to collect these taxes. Their resources are vastly greater than most of us e-tailers who are concentrating on making a living. Ultimately, the cost of business will go up, which will mean prices will go up and be passed on to the consumer.

Cheri Neveu, The SoapMeister
Neveu began her e-business in Ardenvoir, Washington, in 1997 after friends and family expressed interest in purchasing her handmade soaps. She has since extended her reach into selling shower favors, private-label and novelty soaps. Read more about The SoapMeister here.

What do you think of Internet taxes? Do you think it's just an inevitability or unfair for e-tailers?
Neveu: I believe the online purchases will eventually be taxed. The various state revenue departments see the opportunity for a substantial increase in their revenues and will push until they have laws passed to cover this.

Do you think charging tax will negatively affect your business?
Neveu: I don't believe it will negatively affect my business. Most clients ask what the tax is when they order and are pleasantly surprised to find none. Sales tax is like S&H. Seldom do you purchase anything which does not include an S&H fee, whether [it's] visible or buried in the price of the product.

Any other comments?
Neveu: Sales tax is charged in most states, [but for the states that don't charge sales tax,] there will be some confusion, as those people know they are not charged and will challenge anyone quoting a sales tax to them. This will also be a bit of a nightmare for the online shopping carts due to the different tax percentages throughout the states. No e-merchant looks forward to that task!

In Entrepreneur Magazine
Be sure to check out our "Smarts" section in April 2003 Entrepreneur, which includes an article exploring the Internet tax debate in more depth.
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