Collecting sales taxes from online retailers will hurt small businesses

Collecting sales taxes from online retailers will hurt small businesses
© Getty Images

What if today’s largest online retailers had never been afforded the opportunity to become just that — the largest online retailers? We are a nation of competition; many Americans strive to open and grow businesses and live the American Dream.

An upcoming June decision by the Supreme Court — South Dakota v. Wayfair — could effectively shut the door on American small business entrepreneurship by burdening small business owners with compliance and government reporting cost that a very few businesses can afford. That’s because most business in America is small business.

ADVERTISEMENT
According to the U.S. Small Business Administration, Maryland small businesses employ 1.1 million people, or 50.2 percent of the private workforce. Nationally, there are 30.2 million small businesses in the United States, employing 58.9 million people. That’s 47.5 percent of the United States’ private workforce.

 

In 2018 alone, small businesses created 1.9 million new jobs. Further, 8 million of these small businesses are minority owned. With increased compliance costs of expanding online sales tax, these small businesses will be forced to use more of their resources complying with 12,000 taxing jurisdictions than creating new jobs.

Small businesses face hurdles from the beginning. On average, small business owners currently spend more than $83,000 staying compliant in the first year of operation, according to a survey released by the National Small Business Association. Let’s also take into consideration the time it takes to meet with specialists and understand regulatory burdens, time taken away from other efforts to grow their businesses.

If Quill Corp. v. North Dakota — the physical presence standard from a 1990s Supreme Court case — is overturned in June, small online retailers will have to collect and remit sales tax from purchasers from across the country – thousands of taxing entities.  

The internet has been one of the largest conduits for small businesses to expand their markets and increase sales. What was once a small store in Main Street Iowa, for example, now has the potential to reach millions of customers across the country.

However, small retailers lack the resources of their large online counterparts —  such as Amazon — to easily comply with federal, state and local tax codes — there are more than 12,000 taxing authorities in the U.S. alone. With the increase in costs necessary to comply with expanded online taxes, many small businesses will not survive.

There is no question that overturning Quill will have a devastating impact on small business, but there is some question over who or what government body should make this decision. Taxation — so says the commerce clause of the constitution — is not an issue that requires the Court’s involvement. It is the job of Congress.

Even the Supreme Court Justices believe this is an issue best left to Congress to decide, with Justice Elena Kagan questioning whether the case was even an issue at all. Congress is the only avenue for a fair distribution of power between large and small businesses, yet in 26 years, they have not acted on the precedent.  

Technological advances and a changing landscape of how we do business online may make it necessary to re-examine the physical presence standard. However, the Justices are also correct in questioning whether it needs to be decided upon at all.    

Justice Breyer also expressed concern over why it was being heard at the highest court instead of Congress, saying Congress should be the ones to decide the physical presence standard in South Dakota v. Wayfair. Breyer stated, “We have briefs from three Senators and Congressman Goodlatte that says Congress was about to act. And, indeed, what stopped them from acting was our decision to decide this case.”

Regulatory complexity is death by a thousand cuts to America’s small businesses. Let’s stop cutting down Maryland’s and America’s small businesses and instead free them from the burdens of increased regulations. Congress must legislate what is fair, and if they know what’s good for small businesses, they will maintain the status quo and not legislate a cross-border money grab.

Gail H. Bates (R) is a state Senator representing Maryland’s 9th District.