Two Sides to Internet Sales Tax
Release Date: Tuesday, November 19, 2013
Release Number: 13-12

Two Sides to Internet Sales Tax

Report gives objective analysis for small businesses and policymakers.

WASHINGTON – The SBA Office of Advocacy report entitled, An Analysis of Internet Sales Taxation and the Small Seller Exemption, analyzes the number of firms that will be affected by the small seller exemption (SSE) if current legislation passes and how much e-commerce is likely to be affected.

“This is a tough issue for small business owners.  On one end of the spectrum, a small seller exemption would reduce burdens for small online retailers.  On the other end, brick-and-mortar stores without an online presence would continue to collect sales taxes.  This report gives pertinent information, so everything is out on the table for this important topic,” said Dr. Winslow Sargeant, Chief Counsel for Advocacy. 

Highlights of the report include:

  • With a $1 million SSE threshold, less than 2 percent of all non-store retailers would be required to remit sales taxes.
  • With a $1 million SSE threshold, the total sales subject to the tax would account for 57 percent of online retail sales.
  • On average, online retailers already collect sales taxes in 18 states representing 47 percent of total national and local sales taxes.

With the growth of online sales, policymakers introduced the Marketplace Fairness Act of 2013 to develop a tax policy framework for states and online retailers that is consistent and fair for all retailers.  Through this potential legislation, all online retailers would benefit from a streamlined online tax system.  The measure passed the Senate and a House bill awaits action.

The full report is available on the Office of Advocacy website at www.sba.gov/advocacy/7540/758295.

Background:  Nationally, sales taxes contribute nearly one-third of all state taxes and nearly one-quarter of all state and local taxes.  In 2012, state sales taxes brought in $243 billion.  For the study, the researchers acquired the Top 500 and Second 500 databases compiled by Internet Retailer magazine and evaluated the proportion of firms that would fall above and below the SSE proposed in the Marketplace Fairness Act of 2013.

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The Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. The presidentially appointed and Senate confirmed Chief Counsel for Advocacy advances the views, concerns and interests of small business before Congress, the White House, federal agencies, federal courts and policymakers. Regional advocates and an office in Washington, D.C., support the Chief Counsel’s efforts. For more information, visit www.sba.gov/advocacy, call (202) 205-6533 or get updates on Twitter (@AdvocacySBA) or Facebook at www.facebook.com/AdvocacySBA