With the True Simplification of Taxation Coalition recently releasing a study addressing the challenges and costs associated with collecting sales tax under the Marketplace Fairness Act, we wanted to talk to one of our community members to get a real life outlook on some of the study’s claims. In this interview Cori O’Steen, owner of UPak, an online business selling packing and shipping supplies, reacts on the study’s claims.

Obviously the Marketplace Fairness Act brings up a lot of questions about tax calculation, collection and remittance. So how much time would you say you currently spend on all of that, without the Marketplace Fairness Act in place?

I currently spend a couple of hours to get it all processed every month. It can take up to four hours a month because I operate in two different states, South Carolina and California, and the two are so incredibly different. Given our sales volume and amount of revenue we bring in, I have to file taxes monthly. With California I have to pre-pay for each quarter and then file, meaning I have to figure out how much I’ve collected and figure out the difference. The whole thing is very difficult.

The study showed that the ‘free’ software is not a viable option for a lot of businesses and the software would cost small businesses of your size between $80-$290,000 in setup and integration costs and then an additional $57,500-$260,000 in costs for maintenance, updates, audit, and service fees.  What is your reaction when you hear that you could be faced with these tremendous cost projections?

First of all we would have to hire somebody to handle this, because of the amount of hours that it would take to handle all the states, which would add to these numbers. But if those numbers are accurate, then there would be no point in us being in business, as the costs would eat up all of our profits, including our own payroll to ourselves as the business owners. There would be nothing left.

The study brings up some valid points about product classification and tax exempt customers and the difficulties of handling that. Do you have any experience with this currently that you foresee being an even bigger issue with the Marketplace Fairness Act?

In my particular category we often sell to resellers, which legally means we don’t need to collect sales tax. Yet without a resale permit you have to pay sales tax, which means that we have to be responsible for collecting resale certificate numbers from our customers.  Currently we only do this where we have physical presence, which already presents plenty of headaches. Sometimes we have to zero out transactions on our own website where customers provide the resale certificate after the sale and have them start from the beginning. But on platforms like Amazon and eBay that’s not possible, so we don’t even do it.  Now imagine having to do that for every state - that would be a nightmare.

Being a multi-channel business that sells on your own website, eBay and Amazon, do you currently have your own software that streamlines different processes in your businesses that relate to order management, inventory, customer service, returns and refunds?

Well we really don’t, we use each platform’s information and software and we have to bring it all together, because we truly can’t afford it. Even our shipping software doesn’t integrate with all three.  It could be done, but not with what we can pay. It would be a custom job to build something like that and it’s very expensive to bring in a developer to do that. The cost would probably be about the same as a full-time employee for year.

Given that using 46 different types of software is probably not feasible for a business of your size, you’d probably have to go out there and purchase a more sophisticated piece of software. How would you integrate that software into your website?

We are not IT people, we have different business skills and we don’t have anyone in house that would be able to do that, because it’s too expensive to retain a developer and we don’t have that many employees. We’d have to hire a very expensive contractor. We currently have minimal development on our site and even that is pretty costly, something more sophisticated like this tax software would definitely take a lot of hours. Every time something comes up we have to take time away from our everyday duties and learn it, the same would be true for this tax software.

A study talks a lot about ‘checkout friction’, or the notion that any errors preventing a buyer from quickly and efficiently buying a product are likely to result in a customer giving up and abandoning their purchase. The Marketplace Fairness Act would require that shoppers type in their full shipping address to be matched against a database so that you can charge sales tax based on the appropriate sales tax jurisdictions, that could create friction. What’s your reaction to this?

Even today with our platforms we get customers asking about different errors they are getting or the inability to do something during the purchasing process. They often contact us and we walk them through it, which is obviously very time consuming and takes extra customer service hours. Additionally there are a lot of people buying on the Internet, that have absolutely no idea what they are doing. We have to walk people through the simplest procedures, much less something like that. I’m sure it would cause them to give up on their purchase. Address verification often doesn’t work, and you get error messages telling you the address doesn’t exist.

The MFA does not require states to consolidate audits or respect other states’ audits. Have you ever been through an audit? How do you feel about this?

I’ve never been through an audit thankfully and I can’t imagine what that would even look like. However I have received notices from the state of South Carolina when I made a mistake on a tax form and forgot to fill out a specific item. Initially I did not know what mistake was, I’m not an accountant, then I finally figured it out. I imagine under the Marketplace Fairness Act, if you do anything wrong at all, you would be receiving notices from a myriad of different tax authorities in different states and you’d have to write a letter explaining what the problem is or you could possibly incur penalties.