As the owner of a small online business — Class-Tech Cars, specializing in automotive parts located in Virginia — I never expected to find myself testifying before Congress. A recent Supreme Court decision (South Dakota v. Wayfair) on the imposition of internet sales tax burdens, however, led me to do just that last week when I testified before the committee headed by my hometown congressman, Bob Goodlatte.
It was important for Congress to hear the voice of independent small businesses like mine, who worry about what the future holds after the ruling and whether it will impose unreasonable and impossible burdens on our businesses.
Like many entrepreneurs, I decided to follow my dream of starting my own business and take a big risk in trying to make my mark in the automotive world.
With minimal funding, I began selling automotive items online out of my home in 2001.
Over the past 17 years, I went from selling a few items a day to a small business that has nearly 7,000 active listed items with a specialization in American-made muscle cars of the ’60s and ’70s.
Online platforms, like eBay, have assisted my business in being able to market and sell products not just in the U.S. but throughout the world.
The internet is a tremendous tool for small business throughout Virginia, but make no mistake: Starting and growing a small business remains a difficult task. Every expenditure I make must be carefully considered.
I employ eight individuals and am committed to growing my business further, including moving into a large warehouse space in the coming months.
Last month, the Supreme Court decision in Wayfair overturned the precedent that required a business to have a physical presence like a building or employees in a state before a remote business could be required to collect and remit sales taxes in that remote state.
The ruling gave me — and millions of small businesses across the country who use the internet to reach customers — pause as we consider what lies ahead.
Raising capital, setting up an office or warehouse, hiring employees, and maintaining accounting and payroll systems are all challenges that come with building a small business.
But one enormous burden small businesses have not yet had to bear is the threat of having to collect and remit sales tax in roughly 12,000 jurisdictions across the country.
Online small businesses in the Shenandoah Valley and across Virginia collect and remit sales tax like any other business in those states where we have facilities, inventory, or personnel. For me this process is handled by a part-time employee who spends a few hours every week recording sales made in those locations, calculating the amount due through tax software, and sending in the monthly payment. I do not know how we would handle having to increase this collection and remittance compliance from a few locations to thousands across the country.
I have heard the pitch that “free” software can solve the problem, but we all know that nothing in life is free.
After integration and maintenance costs and the additional costs that come when you need increased functionality, like software customization or 24/7 customer service, or when you exceed a certain number of transactions — “free” software can get expensive.
Collection and remittance is one thing, but think of the risk of audits by faraway states where you have no contacts or connection, and compliance measures in the thousands of jurisdictions across the country. Many online small businesses sell in multiple ways — from their brick and mortar store, over the phone, on their own website, and on marketplaces such as eBay. Certified service providers’ (CSP) audit protection guarantees fall flat when a state or local jurisdiction simply claims there is misrepresentation or fraud. Once a small business receives a demand letter from a faraway jurisdiction, it is left with the lose-lose decision of just paying the ransom or trying to defend itself in a foreign state tax court.
Small businesses are the lifeblood of Virginia’s — and America’s — economy, and the internet has allowed American small businesses to start up and grow in unimaginable ways. As confusion sets in after the Wayfair decision, I worry about what comes next for my business. I worry I will now need to devote significant amounts of my time to ensure we will be compliant across a web of tax jurisdictions. I am concerned I will have to forgo critical investments or additional personnel to hire a full-time employee to handle tax compliance issues for out-of-state jurisdictions. And I wonder what a stream of out-of-state audits over the years would do to my business.
I urge Congress to pass legislation to protect small businesses like mine, and millions across the country, from having to endure this uncertainty and these burdensome tax and audit requirements. Small businesses are the growth engine of our economy, and without important protections we risk preventing new entrepreneurs from starting successful online businesses.