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Businesses backing away from e-commerce over tax concerns

| Jun 21, 2019 | Contracts |

Since the beginning of e-commerce as a force in the marketplace, business leaders and lawmakers have argued over how to handle the issue of sales taxes. If a website for a Denver company sells a widget to a customer in another part of Colorado, should the customer pay the sales tax rate for Denver, or for the customer’s location?

Recently, Colorado Gov. Jay Polis signed a law that will require website-based sales to pay the tax rate based on the destination of the sale. The law is meant to help the state comply with a U.S. Supreme Court decision, and could potentially be a boon to smaller local governments. However, the rollout of the law has been met with confusion and frustration.

Small businesses must now research the locations of their customers, look up the sales taxes in those jurisdictions, collect the appropriate tax rates and send the proceeds to the local governments. Since many local governments have their own way of collecting sales taxes, this can lead to a lot of confusion and some absurd situations.

One small business owner told a newspaper reporter that she sold a small product to a customer in another Colorado town, earning $1.60 in profit, but had to pay $1.38 in taxes. In order to use the destination city’s tax remittance program, she said, she had to buy a $60 business license.

Some small businesses have said, rather than going through the hassle, they are discontinuing web-based sales within the state. Others say they will simply continue as they did before and pay any resulting fines, rather than incurring the expense of complying with the law.

Small business owners can talk to a Colorado business attorney about their options in complying with the new law. A business lawyer can help owners and managers to plan for changes and plan for success.