How to know if your small business qualifies for the “small seller exception” in Marketplace FairnessPublished:
Here’s what to do if it passes.
If passed, as is, the Marketplace Fairness Act will exempt small sellers from state sales tax. I take a closer look at the requirements for exemption and what small businesses can do to steer clear.
You probably do not want to put your business on the line while the Marketplace Fairness Act stalls in the House. You would rather at least figure out what you can do to protect yourself from the negative effects of the bill, if it passes, as is.
Because there is at least a good chance the bill will pass, despite the problems it might cause. Bipartisan support in in the Senate (Marketplace Fairness passed 69-27) and univocal Democratic support is a strong indicator that the 'aye's might outnumber the 'nay's. If that happens, what can you do?
If your business earns less than $1 million in sales from remote locations, then you do not need to do anything. The 'small seller' exception protects many small businesses from the heavy burden of the Act.
The various and sundry costs of implementation have been estimated to be between $30,000 and $200,000. For a business earning less than $1 million in remote sales, even the lower of these two figures – combined with the burden of remitting roughly 8% of their sales – poses a serious obstacle. If your business is approaching this level of revenue, then is there anything you can do to mitigate risks or costs?
For one, you can accurately estimate what your sales are, as they will be applied to the small seller threshold. Note that your sales must be over $1 million in remote locations. Your in-state sales do not count toward the tally. You might find that you still qualify for the exception because your home-court advantage has gifted you with some extra leeway.
Moving forward, you might target markets within your state until you are sure you can handle the burdens of integration and taxation. You could try asking whoever is handling your Internet Marketing to place restrictions on your ads for in-state visitors only. These restrictions are also typically less expensive because they are more targeted. You can also rework your web page to focus on consumers within your state. Any number of other strategies can help your business grow around the forthcoming tax.
With any luck, they will redraw Marketplace Fairness and increase the exception to a more tolerable threshold, but if the bill passes, then at least you will have a strategy in place.
And if you have any other ideas for how you would navigate your business through these murky waters, let me and my readers know with a comment below!