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The Shipwire Blog/Online Sales Tax: small and international business impacts

Online Sales Tax: small and international business impacts

After having reviewed the basics of the online sales tax in Part 1, it seems pretty reasonable to conclude that this law will adversely affect small online sellers with huge burdens of time, money, and stress. In Part 2 of this series, we will explore the consequences this law will have on small and international businesses.

Are they intended or unintended consequences? Feel free to comment.

Consequences for small businesses

Online Sales Tax

Online Sales Tax info graphic by endicia

Proponents of the MFA, mainly large brick-and-mortar retailers, state that this act will “level the playing field” against online retailers. The fallacy in this argument is that big retailers are more equipped to handle the new costs associated with collecting the sales tax. Small businesses will be the ones that suffer.

If you are a small business owner, you are well aware that the efficiency of your day-to-day operations has been the key factor in your success. Now imagine you have to start collecting a sales tax from 9,600 different states, local, and municipal districts across the US. This is a difficulty small businesses face with the MFA. An added administrative complexity is placed on sellers, which means there is now a need to purchase new software and potentially hire new employees to file paperwork and perform other administrative duties. This has a negative impact on the smaller merchant’s bottom line.

It also doesn’t take into account the hassles of having to keep all the tax rates displayed properly to buyers in their cart checkouts, so that the businesses don’t end up paying for the tax out of margin. Adding to getting shipping and pricing right, tax display and collection from buyers during checkout might go through a similar evolution of “free shipping”, where the base price is marked up and then the seller just pays it out of base.

In either case, the real people that suffer are the small businesses, and of course, the consumer. Let’s not overlook the consumer, who is affected as well: Forbes puts the cost of the MFA at $167/year for the average online buyer.

So in summary, there is a rather large new tax in town. But who is paying? Big businesses were largely already dealing with this and have the infrastructure to deal with it going forward. Small businesses and emerging brands have to shoulder a huge new burden to get this right and have a large new risk. Consumers pay more, as well. Perhaps this is why a recent survey found that consumers say they will buy less if the online sales tax goes into effect.

Consequences for international businesses
There is another issue that concerns US-based companies that sell their products abroad and collect a sales tax: taxation without representation. How is a foreign government supposed to impose a tax on someone who is not physically present in the country, but is also not a citizen? This will undoubtedly entice international customers to shop more in their own countries, rather than placing orders with trusted US sellers, large or small.

This also affects small businesses only operating in the US who would be collecting tax for states where they have no representation.

Will other nations find some way to increase taxes on American imports to that country?

Will some states see an opportunity to bring internet sellers to that state by eliminating sales taxes for online purchases and sales? Probably not in the reach for tax revenue, but maybe some will try something novel.

What’s next?
Although the online sales tax will bring in a significant chunk of revenue for state governments, there is a good chance that the administration will become a nightmare for small online sellers. It is inevitable that there will be unintended consequences as a result of the MFA and small business owners will have to find innovative solutions to thrive despite this new legislation.

Subscribe to the blog to receive updates about this multi-part MFA series. Next time, we’ll talk about the possible aftermath this act could create and what small businesses can do about it.

Stay tuned for Part 3 of this three-part series on the MFA. If you missed Part 1, you can find it here.


  • Genaro Sinitiere 10/31/13
    Great article. Will there be a follow up?
  • fifi 09/30/13
    Good article. I am fairly new to selling online and have so far managed to figure out which US states I need to charge sales tax. I am thinking of selling my product internationally also. Am I required to charge sales tax for each individual country and pay it back to to their government? Does the same apply to Canada? From what I have read some say yes it's the seller's responsibility and others say that the buyer will pay the tax when they collect the package. I'm a bit confused.....
  • dimitri 07/16/13
    Phil, this is still a proposed bill and hasn't been passed, so it's uncertain if and when it will go into effect. Not sure about any comprehensive guides. There will be over 9000 different tax jurisdictions/brackets if it's passed which may be difficult to categorize.
  • Phil cafferty 07/16/13
    Thanks for article. When are new laws going into effect.? Is there a site available that explains tax rate in each area thru out the country?

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