10 Ways Internet Sales Tax Will Change the Online Marketplace

The federal government may soon order online stores to do what offline stores have done for years: collect state sales taxes. If the Marketplace Fairness Act of 2013 passes the House, get ready for a universal online sales tax and a shifting internet marketplace.

10 Ways Internet Sales Tax Will Change the Online Marketplace

Here are the main ways consumers may experience change:

1. Higher Online Order Totals

People who shop online will obviously notice higher bills of sale, with tax figured into each purchase, whether as small as a memory card or as large as a flat panel TV. This could affect how much people are willing to spend online.

2. A Dip in Online Sales

Online retailers could lose business. Customers already pay shipping costs but consider that offset by the absence of sales tax. If shoppers have to pay for both shipping fees and sales taxes, Web buying may cease to be as appealing as it once was.

3. Revival of Brick-and-Mortar Stores

Many offline stores may receive an influx of customers as people rediscover the convenience of getting merchandise immediately without waiting for it to be delivered in the mail. If sales tax is paid in both venues, offline stores may be the better option for some who aren’t looking for the convenience of shopping in pajamas.

4. Retailers Owing Taxes to Dozens of States

Medium and large retailers that serve customers across the nation may have to collect and remit sales taxes in varying amounts for 20, 30 or 50 states. This could require an accounting overhaul, including new software and new tax consultant contracts.

5. States without Sales Taxes will be Destinations for New Business

Alaska, Montana, Delaware, Oregon and New Hampshire may become hotspots for entrepreneurs to open new businesses or places for online retailers to build physical plants since these five states do not have sales taxes.  Customers in those states who buy online or offline from in-state businesses would be exempt from paying taxes.

6. Shoppers Relocating to Tax-free States

Businesses might not be the only ones looking at the Tax-free Five. For new college grads or families interested in relocating, the lack of sales taxes might become a lure, right up there with good schools and high home values. Those who shop a lot may look to live in a state where all purchases will be exempt from state taxes.

7. Small Retailers May Become Online Favorites

Since the Marketplace Fairness Act, if passed by the House, would apply only to business making more than $1 million in sales, small online stores will be able to boast that they are a tax-free zone. This could attract more business for them, but would also put them at risk for tipping sales over that one million dollar mark. It would be tough to think you can evade the law but there are options out there to lessen the effects of internet sales tax.

8. Online Retailers May Expand Physical Presence

Currently, the rule has been that if an online retailer had no warehouse, store, or plant in a state, they did not have to collect sales taxes in that state. This stopped many retailers, such as Amazon, from opening sites in states that demanded it collect taxes. Now that nearly all states will be forced to collect online taxes regardless of whether a physical site exists or not, there will no longer be a reluctance to expand physically. In fact, many retailers will feel the pressure to ship faster and therefore want to create more warehouses to be closer to customers.

9. Online Stores will Offer New Deals

In order to stay competitive, online retailers will have to find a way to offer new deals and price cuts to be attractive to consumers now that they can’t rely on shoppers looking for tax-free buys.

10. Auctioneers will Feel the Heat Of Tax Collection

Hobbyists won’t be affected, but those who make their living from auctions on eBay and other sites will have to collect taxes if they are mega-sellers who have sales totaling more than $1 million a year.

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