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TaxJar: Software Is Not The Way To Solve The Internet Sales Tax

July 16, 2013

The following blog post was written by Mark Faggiano, founder of TaxJar, a company founded by small business experts to help online sellers simply the hassles of tracking and filing sales tax. Visit the TaxJar blog to learn more about Mark and his position on Internet sales tax.

I love software. I live and breathe it. I couldn’t make a living without software. For more than 10 years I’ve run a series of companies built on custom software. Some of it was created by other software! I’ve even been lucky enough to grow a company and have it be acquired because the software worked really well. I’ve been through the wars to build new software, test it, release it, and have people use it. Safe to say software is an integral part of my life.

We speak with customer every day. And what they’re telling us is that the Marketplace Fairness Act has them worried for some very good reasons.

Software can’t work miracles

I already told you how I feel about software. Here’s the part about software that ecommerce merchants I speak with all the time dread if the Marketplace Fairness Act gets passed – implementation. There are literally hundreds of shopping carts out there that online sellers are using. Not even the best software magician in the world will be able to write software compatible with every cart. What if your cart isn’t supported? Who will foot the bill for you to switch to a supported cart?

What happens after sales tax is collected?

Collecting sales tax at the time of a transaction is one thing. But what happens after the sale? How does an ecommerce merchant keep track of all of the deadlines? What about figuring out how much is owed to each state, let alone the enormous pain of filling out the forms and making the payments to the states? What happens in case of an audit? Don’t tell online sellers that free software is going to do all of this, too. They don’t believe it.

It’s a multi-channel world

Not long ago, online sellers sold on a single platform, eBay for example. Nowadays as competition gets tougher, sellers are leveraging multiple markets to reach a broader audience. They’re selling on eBay plus their own website plus Amazon plus Facebook plus the local craft fair on the weekend. How is free software going to be able to compile an online seller’s data from all of these channels and provide the sales and tax data needed to file?

$1MM is not the correct threshold

Let’s not confuse $1 million in profit with $1 million in revenue. Online sellers whose businesses generate $1 million in revenue are not getting rich. They’re fighting tooth and nail for modest margins. The burden of registering for new states, collecting sales tax, filing and paying sales tax owed to all states will crush those margins further. Even if the software is free, compliance will be so costly that the online seller making $1 million in revenue will take on huge new costs that may force him out of business.

Will the Marketplace Fairness Act be good for my business? You bet. But I can’t listen to all of my customers talk about how hard it will be for them to comply and turn a blind eye. This legislation is not the right way to solve the states starved budgets or level the playing field. And it’s certainly not fair.