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Headsets.com CEO Mike Faith says he might need two staffers to handle tax collection.
ERIC RISBERG/ASSOCIATED PRESS
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BY JOYCE M. ROSENBERG
AP Business Writer
NEW YORK--Small business owners may be closer to losing an advantage they've enjoyed during the e-commerce boom--being exempt from collecting sales tax in states where they're not located. And they're worried they will have to spend more money in the process.
Under federal law, a state or local government cannot force a company to collect sales tax on a purchase unless the business has a physical presence in that state. The physical presence could range from an actual store to an office, warehouse or distribution center. The sale could be conducted online, over the phone or through mail-order.
The arrangement saves money for shoppers who use price-comparison websites or mobile apps, and those who spend time surfing for the best overall deal.
But Washington lawmakers currently have several bills in the works that would end all that by forcing companies to collect the tax. Businesses are split over the issue.
On one side are small retailers who say they wouldn't be able to bear the costs of collecting the tax and filing reports and tax returns the states and local governments require.
Headsets.com, for instance, might have to hire two staffers to handle the administrative work if what's called remote tax collection becomes law, says CEO Mike Faith. The company has operations in California and Tennessee, but sells to all 50 states. Currently, federal law requires the company to collect tax only in those two states.
Faith expects the law would force him to hire workers to help his San Francisco-based company comply with it.
On the other side are in-state sellers and larger retailers with physical locations dotted across the country who sometimes lose business to competitors who don't have to collect the tax. Even if two retailers charge the same price for an item, many shoppers choose the seller that doesn't collect taxes to reduce their overall cost.
"It's a problem that needs to be addressed. It's an un-level playing field," says David French, a lobbyist for the National Retail Federation.
And on yet another side are the state and local governments that stand to collect billions in uncollected revenue if a bill makes it through Congress. States have wanted the tax money for decades and are particularly anxious for it now because their tax revenue is down following the recession and the housing crisis. (In Virginia, Gov. Bob McDonnell's transportation plan would rely heavily on Internet tax money.)
State and local government officials have wanted to change the law for years, even before the catalog boom of the 1980s and the Internet boom of the '90s.
Small business owners have resisted along the way. They argue that the burden of keeping up with the estimated 15,000 different sales tax rates charged by the 7,500 to 9,600 jurisdictions made up of states, counties, cities and towns is just too much.