Taxing online purchases could be taxing for small business - Beckley, Bluefield & Lewisburg News, Weather, Sports

Taxing online purchases could be taxing for small business

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Joseph Hamsher packages an online order at The Purple Moon in Charleston where 30 percent of sales are made online and shipped. Joseph Hamsher packages an online order at The Purple Moon in Charleston where 30 percent of sales are made online and shipped.
Thirty percent of The Purple Moon’s sales come after its shoppers have browsed the store’s collection online and stop by, according to owner Chuck Hamsher. Thirty percent of The Purple Moon’s sales come after its shoppers have browsed the store’s collection online and stop by, according to owner Chuck Hamsher.
Wheeling Truck Center has grown its online sales in a short period of time and expanded to do international business. Photo courtesy of Wheeling Truck Center. Wheeling Truck Center has grown its online sales in a short period of time and expanded to do international business. Photo courtesy of Wheeling Truck Center.
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In West Virginia, small businesses are celebrated. 

When those small businesses make imprints beyond the Mountain State's borders, that success is celebrated. Residents relish the thought of well-deserved success as well, along with the prospect for outsiders discovering the hidden gems that dot the landscape.

At The Purple Moon in Charleston, five employees keep the 20th Century antique store in business. About 30 percent of sales are generated by the store's online presence and another 30 percent of sales come from online purchases.

Gurkee's employs about 15 people in Morgantown, making rope sandals and shipping thousands of them to Korea, Japan, the United Kingdom, Romania, Italy and Zanzibar.

And at Wheeling Truck Center, the fourth-generation family business with 21 employees ships truck parts to all 50 states and 87 foreign countries, thanks to its online presence.

All three make up West Virginia's strong backbone of small businesses, and each business owner thinks the Marketplace Fairness Act, currently under debate in the U.S. Senate, which would require each of them to collect taxes of online sales in states that have sales taxes, is unfair.

How it Works

The West Virginia Retailers Association is in support of the Marketplace Fairness Act, as is President Barack Obama. The legislation's co-sponsor, Sen. Jay Rockefeller, D-W.Va., spoke on the Senate floor last week about how the bill would protect both West Virginia businesses and consumers by leveling the playing field for local businesses to compete with online retailers.

The way Rockefeller explains it, the measure would give states the flexibility to collect the sales taxes that already are required for online purchases. Right now, consumers are supposed to calculate and submit those taxes on their online purchases — something few people do.

So the bill would ensure the same sales taxes are charged by all retailers — whether they're online or on Main Street. And it would exempt online businesses that make less than $500,000 from state sales tax.

The idea is different from the bill West Virginia Legislature recently passed to require any online retailer with a facility in the state — whether a storefront or a distribution center — to charge the state's 6 percent sales tax.

West Virginia loses anywhere from $56 million to $103 million each year because of lost sales tax revenue on Internet purchases, according to information from Rockefeller's office.

Both Walmart and Amazon support the Marketplace Fairness Act, but some small business owners in West Virginia say that's part of the problem.

What's the Rub?

At Direct Online Marketing in Wheeling, President Justin Seibert helps clients get quality web traffic for their sites. He said he can name several clients who started with brick-and-mortar stores then started selling items online as experiments.

"And that experiment has now led to their most profitable growth and sometimes the largest percentage of their revenue," Seibert explained.

He said he appreciates the intent of the bill, but he sees some problems in it from his perspective.

"I think anybody who looks at it honestly — we all know that the laws are going to change," Seibert said. "The macroeconomics, they're going to require that it's going to change.

"The non-taxation of Internet purchases can't go on this way forever, but the state bill is a lot closer to being the right solution in my mind than the federal bill is."

Seibert said the Marketplace Fairness Act would actually hurt small businesses by allowing foreign corporations to skirt the tax laws, and despite versions of the bill being pushed around for several years, the newest version is already outdated.

"We should be looking at something more forward-facing — something fairer," Seibert said. "Consumers are going to be hurt, and I think that's the opposite of what their intentions are."

What Small Businesses Say

The Amazon powerhouse is already gearing up for small businesses to have problems potentially keeping up with nearly 10,000 different tax laws.

"I think they've known for a long time something is coming," Seibert said.

Amazon is rolling out its own tax compliance service for other merchants.

Starting at the smallest side of the spectrum, Purple Moon Owner Chuck Hamsher says there's a reason the big businesses support the bill.

He's not fundamentally opposed to the measure, but suggests the exemption for "small" businesses be tweaked a little.

"Ninety-seven percent of online sales come from the top 500 online retailers," he said. "If you look at the bill in terms of looking closer to what the typical definitions of small businesses are, 50 employees doing $10 million in sales, that might be getting in a little better range."

He said that's the Small Business Administration definition of a small business, and it's what Congress should be using.

Hamsher was featured by Google a few years ago as an example of the good that comes from small businesses getting online. He said about 30 percent of his sales are done online, and another 30 percent of his sales occur in-store after a person sees his wares on the web.

He said even with attempts at simplification, his 11-year-old business with a handful of employees could be looking at doing 40 tax returns per year — along with the threat of audits in each jurisdiction.

But one thing Hamsher said he learned a long time ago in business is to deal with the problems as they come.

"I understand the process, but I think it would be difficult," Hamsher said. "It might impact what we do, maybe we pull back on online sales because of that, but those are the decisions someone's going to have to make in business."

At Gurkees in Morgantown, owner Ray Sickles said the bill would be "a huge burden on small businesses who are already strapped in this economy."

"Especially if we are required to collect tax for a state that we do not reside in," Sickles said.

Gurkees has been around for 30 years and online since about 1997.

He thinks the measure's support from big-box stores shows that it's "another nail in the coffin for the little guy," and the risk of complying with even more tax agencies will create more red tape.

And at Wheeling Truck Center, which has been in business since 1933, its online truck parts sales have ballooned so much, a sister site was launched: Class8TruckParts.com. The business expanded to the web in about 2008, then started international sales in 2010. The website has more than 3,000 part numbers available for purchase and is continually growing its international sales.

Operations manager Chad Remp said he has been watching the issue, and he's a little concerned.

Remp said the mechanics of stitching together the patchwork of different tax laws in different states, keeping track of the different percentages, cutting checks for 50 states and filing in each of those states would be a big burden.

He said the business would adapt to any changes necessary, but he also disagrees with the tactic Congress is taking.

"It's a huge issue, and it needs to be fixed but with a right answer, whatever it is," Remp said.