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Congressman Hodes Hits a Home Run for Small Business

Ruth HomerCongressman Paul Hodes stepped up to the plate for small online retailers, and took a swing at a proposed law that would force new tax collection burdens on even the smallest of businesses who use catalogs or websites to serve their customers.


Hodes’ resolution is titled “Supporting the Preservation of Internet Entrepreneurs and Small Businesses,” and its main provision is:


Congress should not impose any new burdensome or unfair tax collecting requirements on small on-line businesses, which would ultimately hurt the economy and consumers in the United States.


It’s good to see that Rep. Hodes was joined by colleagues from both parties, including Reps Capito, Lungren, Pitts and Schrader.


The Hodes resolution is a direct response to legislation from Rep. Bill Delahunt that would force small retailers—those doing just $100K in annual remote sales — to act as tax collectors for thousands of state and local tax jurisdictions where they have no physical presence.


Curiously, the legislation is titled the “Main Street Fairness Act” and is being sold as good for small business.   But main street small retailers have been getting clobbered by Walmart and big-box stores – not by the Internet.  In fact, main street is learning that the internet is their best hope for finding low-cost supply and finding new customers around the world.


So what would the Delahunt legislation really mean for small retailers who are staking a claim in the online world?


The bill Rep. Delahunt just introduced sets no level for the small seller exception. Instead, it leaves that to the tax collectors running the Governing Board of the Streamlined Sales Tax Project (SSPTP).   On April 30 of this year, this Governing Board voted to cut the small seller exception from remote sales level of $5 Million to just …  $100,000.


But wait, that $100K is just for starters.   The Governing Board amendment included this prescription for driving the small seller exception even lower:


The exemption threshold shall be set at a relatively low level and over time adjusted downward so that only sellers making isolated or occasional sales are excluded from the collection requirement.


Run the numbers:  $100,000 in gross sales is about $8,000 per month.  After expenses for cost of goods, marketing, accounting, communications, travel, etc. there’s not much left to pay for the owner’s time, let alone costs of collecting taxes for 46 states.


And what kinds of costs will SSTP bring? Advocates of SSTP say that Certified Service Providers (CSPs) have software that makes it trivial for even the tiniest businesses to collect sales tax for everyone. But again, a little investigation shows just how big these costs would be be.


A Cost of Collection study sponsored by the SSTP Governing Board shows that small sellers (under $1M) spend almost 17 cents for every dollar they collect for states. And even if CSP software works as promised, that only helps with 2 cents of the 17 cents in costs per dollar collected.  That leaves small sellers with a 15% cost burden on every dollar they collect, for things like:


  • Paying computer consultant to integrate CSP software into the seller’s home-grown or customized software
  • Training for customer support and back-office personnel
    Answering questions from customers who claim they should be tax-exempt
  • Answering calls and emails from customers questioning the taxability of items, or sales tax holidays in remote jurisdictions.
  • Handling audit questions from 46 states, since the CSP will inevitably pass those questions along to the small seller for resolution
  • Paying accountants and computer consultants to help find the answers to all these questions.


These collection burdens will be a huge problem for catalog and online sellers who are collecting only their home-state sales tax today.    Ask any small business, on Main Street or online, and you’ll learn it’s hard enough to collect sales tax for one state, let alone all 46 states with sales tax laws of their own.


With a full picture of what small online retailers would face from Rep. Delahunt’s proposal, we can see why Rep. Hodes and his colleagues were ready to go to bat for internet entrepreneurs and small online sellers.


A close look at the facts show that the SSTP would impose big collection burdens on small businesses, while adding less than three-tenths of one percent of state and local tax revenues.


Sounds like Delahunt’s pitch for SSTP ought to be returned deep into the center field seats.   Swing away, Rep. Hodes!


–Steve DelBianco