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October 18, 2011

Small online businesses push back on sales tax efforts

WINDHAM, N.H. — Raymond Bellia sees himself as the poster boy of 21st century entrepreneurs: His $1 million-a-year online police equipment company launched with a single sale on eBay, and the money he’s making is now going into his first bricks-and-mortar store.

The 28-year-old New Hampshire small businessman credits e-commerce for his success, but thinks the investment in his new storefront is a smart complement.

“Online retail is a much more competitive marketplace,” said Bellia. “There's a lot more comparative shopping going on. It helps to also operate a store, to be in both places.”

He's wary of federal legislation compelling online retailers to start collecting sales taxes -- like bricks-and-mortar stores do -- on cyberspace transactions made in states and municipalities with sales taxes.

“It would hurt my business,” said Bellia. “There are too many taxes as it is. Why should government be taking even more money from us?”

Sales taxes, after all, are a foreign concept to Bellia. In New Hampshire, where he works and lives, there isn’t one. Only four other states share that distinction: Alaska, Delaware, Montana, and Oregon.

A patchwork quilt of sales tax rates and rules abound in the other 45 states. Kentucky, for example, collects 6 percent, but exempts food; Oklahoma collects 4.5 but exempts prescription drugs. Indiana has a single, statewide rate while neighboring Illinois lets local governments piggyback their different rates.

Legislation introduced in the last seven sessions of Congress has aimed at streamlining the sales tax to make it more uniform across the U.S., and to compel online retailers to collect on transactions made in states with a sales tax.

E-commerce advocates have pushed back, fearing federal efforts will make compliance more complicated and costly.

“It's going to crush small online retailers,” said Carl Szabo, policy director for NetChoice, a coalition of online retailers. “If small business is the backbone of the American economy, why would you want to do anything to stifle it?”

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