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Why a Universal Internet Sales Tax is More Complicated Than it Seems

The United States seems to be moving toward internet sales tax. This is expected to cause complications that may threaten many businesses by opening them up to financial mistakes in sales tax accounting. There are pros and cons in the public sphere but when it comes to businesses, this may make accounting much more difficult. This is too bad since credit card processing by merchant accounts has become increasingly user friendly.

The Debate
The current debate is over whether or not an internet business should have to collect state sales taxes. At first, internet businesses were exempt. Over time, as political leaders saw state sales taxes plummet, some politicians began pushing for an internet sales tax.

The Current Compromise
Currently businesses are only expected to collect taxes when they reside in the same state as their customers. This is still complicated since some retailers are national and others are regional. The result is uneven and puts a burden on some while letting others slip through without paying.

The Possibilities
At this point, there is legislation that has been passed by the Senate that would require online businesses to collect sales tax and forward it to states for distribution. This could be a real accounting nightmare for many businesses. Fortunately for smaller businesses, there is an exemption if a business makes less than $1 million a year. Ebay has been seeking a larger exemption which would allow businesses to make up to $10 million before being made to collect sales taxes.

If a business does have a physical presence in a state, then it must collect sales taxes or face an audit by the state. Just as there are modern credit card processing tools, there is software to handle these problems. Anyone with an online business should take the possibility of an audit very seriously. A tax attorney or CPA may be able to advise you on any liability that you may face when doing business online.

This is not an issue that will go away easily. If a business faces the problem squarely, it can still prosper and grow.

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