Why You Need to Watch for an Internet Sales Tax

Posted by John Healy, Dydacomp CEO

John Healy, Dydacomp CEOAs much as I like to talk to you about your business and how Dydacomp can help you be a world class multichannel merchant, there is something facing you that could negate all of the good work we are doing together.  I’d like to spend just a few minutes talking about what I am seeing as a Board Member of the Direct Marketing Association as opposed to the CEO of Dydacomp and how it will affect us all as it relates to what is going on with the current year and the mounting budget deficit.  I am no economist, just a business person like you, but I can already see what we are heading into.

A couple of data points put things into perspective for me recently on the current financial situation for the United States Government and 46 of the 50 States…. The budget deficit is HUGE!  I’ll give you the numbers in a second, but the only way out of this mess is, of course, to spend less and tax more.  Both of those efforts will have a profound effect on your business in the next two years.

So let’s start with the Federal Government.  Below is a chart that Morgan Stanley produced to show an e commerce audience (among others) that one of our biggest challenges for growth will be to stay clear of the Federal Government’s efforts to deal with the annual and accumulated budget deficit.  Take a look at what they showed us for fiscal year 2009 alone:

America's Biggest Challenge

Basically it shows that the US Government took in $2.105 trillion dollars in fiscal year 2009 and spent $3.518 trillion!  So to get things back in line it is apparent that the government will need to cut economic aid, for instance, to the individual states and entities like the United States Postal Service (USPS).  On the latter there is more news… the USPS has projected that if things don’t change they will lose, on average, roughly $24 billion a year for the next 10 years (Source).  On top of that  46 out of 50 states are currently showing a budget deficit that averages about 17% per state or roughly $112 billion dollars in total on their own (Source).  Here is a map showing which states have a budget deficit:

State Budget Shortfalls

So what does this mean to you?  Well, forget how much more in health insurance you will have to dole out as an employer or pay as an employee or that the USPS will file a new rate case in July where they will ask for an exception to raise prices above the cap provided by Congress just two years ago which currently is tied to the Consumer Price Index.

I think the most profound effect and risk to your business is what I am seeing as an effort that has already started by individual states to apply a sales tax when you ship into their state whether the order is taken online or over the phone.  New York and Colorado are already on this.  This will add another 5 – 10% in cost to your customer which is just enough, I believe, to put a large number of orders at risk.

My only suggestion to you is that you stay in touch with these issues and the best way to do that is probably joining the Internet Alliance which is part of the Direct Marketing Association.  They are working on this every day among other issues like privacy and data security.

As more information becomes available on this subject I will post to our blog to share with you.  We will also ensure that Mail Order Manager and SiteLINK will perform for you so you will continue to be able to adhere to the different states’ approaches to collecting sales tax as well as be compliant with non Government regulatory entities like PCI.

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