Opinion: New online sales tax will hurt economy

Graham Manuel

On May 6, the Senate passed a bill that would allow states to further tax online sales. Currently, states can only collect taxes from stores located in their state, which means that if someone buys a product in Florida from a store that only has a physical presence in Kentucky, then Florida cannot collect taxes on that sale. Therefore, this bill will not affect large businesses that have a store in every state such as Wal-Mart.

The National Conference of State Legislatures reported that because a law such as this is not already in effect, states will lose around $23.3 billion in 2012. The states that will lose the least are Oregon, Montana, Delaware, and New Hampshire because they do not have sales tax. California is losing the most money at over $4 billion. Kentucky is at the lower end of lost revenue with an estimated $224.5 million. More information can be found here (http://www.ncsl.org/issues-research/budget/collecting-ecommerce-taxes-an-interactive-map.aspx).

This bill still keeps extremely small businesses from having to pay taxes. All online retailers that have less than $1 million in sales do not have to collect taxes on transitions. However, this is $1 million dollars in sales and not in profit, meaning that the profit gained from these sales is much lower. In many small businesses, a decent amount of profits are invested back into the business for further expansion, which tends to leave the owner with less cash in his or her pocket. I feel like this million should at least be doubled to allow owners to invest back into their business and still have enough money to pay their bills.

This new bill, if passed, will surely hurt small businesses. Taxing online sales will most likely force businesses to raise their prices in order to pay these newly enforced taxes. Small businesses are already at a disadvantage compared to large businesses because large businesses are able to order items cheaper due to the fact that they buy in bulk. Some large businesses also have their own transportation system so they can ship their goods cheaper. So, even without this tax, small businesses already have to charge more for an identical product. If small businesses have to raise their prices further, customers will not be able to buy as many products and might stop buying all of the businesses’ products because they will be able to get them much cheaper from large businesses.

Small businesses might not raise their prices due to the new tax though. They may keep their prices the same and take a hit in profit. This will end up hurting the owners and employees of these businesses. Owners will have less profit so they might have to cut back on employee wages or even number of employees just to keep the business alive. Owners will also have less money to support themselves on. This will also hurt the business overall. A good amount of profits are invested back into the business to update equipment, replenish inventory, and even expand. Less profit means less money to do these things.

Small businesses create around 65% of the United States’ net new jobs according to the Small Business Administration (SBA). The SBA considers small businesses those with less than 500 employees. In most cases, this would not be enough employees to run store locations in every state, which means that all companies under 500 employees that sell items online and produce over $1 million in online out-of-state sales will be affected by this law. This bill will hurt job expansion and hinder the effort in lowering the unemployment rate.

Without this law, $22.3 billion will stay in the economy for people to spend on items that they need and want. This law will cause the loss of billions of dollars in consumer spending that supports small businesses and more jobs. It will cause people to cut back and will also increase the unemployment rate due to a decline in business. Taxes are important to support government agencies such as the fire department, police department, and department of transportation just to name a few, but the government can only tax consumers so much before it really starts hurting the economy. The government is in major debt right now but the last thing they need to do is reduce consumer spending and that is exactly what they will do if they start collecting more taxes. Our economy is still recovering from the past recession so this bill will be a step backwards for the economy and the country.