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The Coming 38% Bookstore Price Increase

By Steve Litt

Executive Summary

Congress is considering levying state sales taxes on Internet sales, even if the online retailer does not have a physical presence in the state. Because 46 states have sales taxes, this would mean Troubleshooters.Com would need to file 46 reports, to 46 different agencies, on a monthly basis. Any one of those agencies could audit Troubleshooters.Com at will. Depending on the form of the final law, I might be required to implement different tax rates depending on zip code.

Under such a deluge of paperwork, I will need to raise the prices of my books by 38% in order to retain my per-book profit. My profit margin will still be way down, but if I keep the per-book dollar amount profit constant at least I should be able to stay in business.

As loyal Troubleshooters.Com customers, I have two suggestions for you:

Order your Troubleshooters.Com books before this tax goes into effect.
Write your senators and congressmen and tell them this tax is unfair to small, online retailers, and because small retailers provide you with choice and good prices, to you..

Isn't it only fair that Internet sales are taxed?

Isn't it unfair for brick and morter retailers to have to compete with me, when I don't collect sales tax?

Yes, that is unfair. But don't believe that the large retailers support of taxing all online purchases is about fairness. It's about monopoly.

Any retailer large enough to need to pay sales tax in several states can afford a fulltime person, and lots of software, to do this accounting with 46 states. Most pure Internet retailers have relatively small sales volumes -- not nearly enough to pay for the accounting requirements created by this law.

This law is an attempt by large retailers to eliminate competition. If this law goes through, small online outfits, whose low prices keep the large retailers honest, will be forced out of business. From that point forward, you'll be forced to deal solely with the large retailers who can afford accounting departments.

Great for the huge retailers, lousy for you!

Is there a fair way to collect Internet taxes?

There sure is! Give online retailers the option of collecting a single rate for all states, INCLUDING THEIR HOME STATE, and submitting the collected tax to a single federal entity. The online retailer apportions the sales of taxable items (and product/service taxability rules must be uniform across all states) according to state. The federal government then sends the money to the respective states,

What is a fair single rate?

The fair single rate should be the national average state sales tax, plus 2% to pay for the government's administration. The money should be apportioned according to sales in the respective states, irrespective of the states' actual tax rate. Thus the four states not currently collecting sales taxes would benefit greatly, while those fiscally irresponsible states with huge sales tax rates would garner slightly less than their normal tax revenues for Internet sales. Internet sellers would need to collect more tax than large retailers, and would therefore be at a slight disadvantage. But nothing like the disadvantage of the current 46 distinct state albatross being discussed.

With shipping cost, doesn't this put Internet retailers at a disadvantage?

Maybe. But the savvy Internet retailer minimizes warehouse space, inventory, and other costs to make up for the shipping. The lack of sales tax collection was never intended to compensate for shipping costs. It was simply a way to prevent drowning small businesses in bankrupting amounts of paperwork and red tape.

Will this fair taxing mechanism be implemented?

Not without a lot of grassroots support. Large retailers have everything to gain by suffocating their pure-online competitors with paperwork. Without the competition, expect retail prices to go up and quality and service to go down. The large retailers have lobbiests in Congress. Small retailers and consumers do not.

America is the land of opportunity, where anyone with desire, drive, and a great idea can make it. With the recent exportation of many middle class jobs, online retailing is one of the last opportunities for a person to pull himself up by the bootstraps. The huge retailers and other entrenched interests would love to eliminate this opportunity, in order to eliminate competition, raise prices, and spend less money on quality and service.

If the 46 state Internet state sales tax passes, you lose twice. First, a major business opportunity is lost to you. This may not be important to you right now, but if the economy gets worse, you may find yourself needing to start an online business to survive. Second, as small online retailers perish, the marketplace becomes more monopolistic, and you lose as a consumer.

Our Canadian Customers will not suffer

Right now I apply a $6.00 per book surcharge to orders shipped to Canada, to cover the extra shipping charges and special handling. The amount charged Canadians will not change, because the U.S. state taxes will not affect my costs for Canadian orders. So if this tax passes, Canada will be by far the cheapest place to buy my books.

If the distinct state Internet tax passes, is there any alternative to the 38% increase?

No. I won't work without a profit, nor will I wholesale these books to a middleman whose only contribution is Internet tax paperwork, nor will I sell my books to a publisher, nor will I go out of business.

Nor can I "fix" this problem with technology. I can't automate it myself, because automating such extensive red tape takes more much time than I have. Not only that, but I predict that the government's tax rate list and taxable item list will be in a Windows-only format (probably an ActiveX or something like that), and my system is Linux.

I cannot buy the technology to fix this problem, because that will cost a fortune. My only alternative will be to spend an additional 1/2 hour per book sold accommodating the reporting requirements of the various states, and that costs money.

If this tax passes in its expected form, Troubleshooting: Tools, Tips and Techniques will cost you $44.00, Rapid Learning will cost you $54.00, and Troubleshooting Techniques of the Successful Technologist will cost you $57.50. That's a $15.00 across the board increase.

If you want these books, get them now while they're still inexpensive!