Study: Internet sales tax software will be costly to implement

Software to help small businesses comply with an U.S. Internet sales tax would cost many businesses tens of thousands of dollars to roll out and nearly as much to maintain each year, according to a study released by opponents of the proposed tax.

As several U.S. lawmakers and retail groups renew their efforts to get Congress to approve an Internet sales tax, opponents countered Wednesday with a study saying sales tax collection software would cost medium-sized Web-based sellers $80,000 to $290,000 to set up and another $57,500 to $260,000 a year in fees, auditing expense and other costs.

Even though some Internet sales tax bills would require states to make tax collection software available free to businesses, many Internet sellers would still have to pay those set-up and maintenance costs, according to the study commissioned by True Simplification of Taxation (TruST), a group opposed to an Internet sales tax. It will be difficult for Internet businesses to get software to work with up to 46 states that now collect sales taxes, wrote study authors Larry Kavanagh and Al Bessin.

“The result is hardly free,” they wrote. “A ‘plug-in’ integration only works when using unmodified, out-of-the-box software. In the real world, where software has been in use for years and has been modified to fit the retailer’s business, integration is substantially messy and expensive.”

The integration costs would be significant for small and medium-sized Internet sellers, who often operate their businesses on “relatively small” margins, Bessin, a retail veteran, said in an interview. “This whole idea that there’s free software and integration is easy is patently incorrect.”

An Internet sales tax requirement would create a new problem for sellers, Bessin said, in an effort fix what critics call an unfair taxing system between online and bricks-and-mortar sellers.

The Marketplace Fairness Act, which passed in the U.S. Senate in May, would allow states to collect sales tax on large Internet sellers that have no presence within their borders. Now, online retailers only have to collect taxes in states where they have a physical presence, including retail stores and warehouses.

Supporters of the bill say the current rules are unfair to bricks-and-mortar businesses required to collect sales tax.

The bill, which is waiting for action in the House of Representatives, would exempt Internet sellers with less than $1 million a year in sales from collecting sales tax for other states.

Supporters of the bill should require states to pay for software integration costs if they think it will be easy, said Steve DelBianco, executive director of NetChoice, an e-commerce trade group opposed to the sales tax bill. The bill doesn’t require states to help with software integration costs, he said.

“The claim that it’s free and easy and that this is plug-and-play out of the box ... misses the whole notion of software integration,” DelBianco said. “It’s not free and easy, and it’s not affordable.”

The study covers Internet businesses with sales between $5 million and $50 million a year. Among the set-up fees, according to the study: $30,000 to $100,000 in website implementation for the sales tax software and $40,000 to $100,00 for order management system integration.

Annual maintenance fees include $20,000 to $100,000 in reporting and auditing costs and $10,000 to $100,000 in lost sales from check-out problems because of address-matching requirements in the Marketplace Fairness Act.

The Marketplace Fairness Coalition, a group supporting an Internet sales tax, discounted the study, saying some businesses already collect sales taxes for states.

“This is nothing more than a smoke screen to disguise the fact that some companies are desperate to preserve their government tax advantage over brick-and-mortar retailers,” coalition spokesman Ron Bonjean said by email. “The Marketplace Fairness Act simply removes the government from the business of picking winners and losers in the marketplace and that’s  why the Senate passed it this year in a broad and bipartisan vote.”

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