The U.S economy, the world’s largest economy, is nearly 70 percent consumer driven. Where Americans spend their money matters, not just for the economy in general, but for the small businesses that are the lifeblood of the U.S. economy. According to the The U.S. Small Business Administration (SBA) more than half of all employed adults work in small businesses. However, many businesses fail because they are unable to compete against foreign competitors. The advent of the internet made the marketplace a global affair, and one which can be very unforgiving to the smaller, local firms unable to compete with the low cost pricing that the internet offers in just about every market and under different, often more favourable taxation conditions. Since the internet began, online retailers have enjoyed the competitive advantage being able to price their goods tax-free. However, all that may well change.
A June 21st ruling by the U.S Supreme Court of Justice looks set to even the playing field out a bit. Compliance costs for smaller e-commerce forms will increase significantly after the Courts decision. The ruling paves the way for states to impose taxes on internet sales by companies located elsewhere and threatens to cut into the mostly thin profit margins of online retailers. An e-commerce business with annual revenues between $300,000 to $500,000 will have to pay a cost of $20,000 upfront and annual expenses of $5,000 to $10,000 to collect sales tax from customers in various states in the U.S.
The ruling would provide a much needed boost to small businesses. An important cottage industry of accountants, tax consultants and software companies look set to reap the benefits. In Seattle, a city that was ranked third in business and careers in a recent Forbes survey, the ruling is already affecting your typical Seattle tax accountant. One such business, a local start-up called Luma Tax, is already considering lowering its fees. The Seattle start-up which sells automated tax reporting services to small and medium sized businesses is mulling over a fee reduction to help keep its clients afloat.
Robert Schulte, the founder of Luma Tax said: “If you are forced to comply in 45 states and you have $1m in revenue, now I’m almost unaffordable,” he said. “I’m going to have to rethink the way I price . . . There’s a fine line where I can deliver the service affordably yet make money.”
Driving the Supreme Court Ruling was reigning in Amazon.com, Inc. NASDAQ: AMZN. The online retail giant accounts for over 40 percent of all e-commerce sales in the U.S.