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In this video, Matt Winn from Volusion discusses 5 ways an internet sales tax will impact your online business. From new software integrations to a shift in local marketing, you’ll learn how federal legislation creating an online sales tax will change your operations.

2010 showed us some very important developments regarding a potential online sales tax. For a quick recap, check out this article on federal legislation via The Mainstreet Fairness Act. In addition to Congressional talks, individual states have also taken action to recoup millions of dollars in lost tax revenues from online sales.

While we’ve seen this type of legislative chatter before, it seems that an internet sales tax has more backing than ever, thanks to a growing deficit and shrinking budgets. But in the event that The Mainstreet Fairness Act is turned into law, what are the ramifications for your online business?

Take a look at these five predictions – regardless of your political standing on this issue, you’ll want to pay attention and start planning ahead.

Happy selling!
-Matt Winn, Volusion

Here’s the transcript if you’d like to read along:

Hi everybody! My name is Matt and I’m an Online Communications Specialist here at Volusion. Welcome to Two Minute Tuesdays, where we give you two minutes of ecommerce advice to bolster your online success. One regulatory issue that we’ve been monitoring for awhile is becoming a big issue in 2011, and that’s the idea of an internet sales tax. In the face of deficits across the country, several states around the country are going their own way to put an internet sales tax in effect, but if it becomes law on a federal level, you’ll want to prepare your online business by knowing these five impacts.

First, there will be a need for new software integrations or a new piece of software itself. There are over 7500 individual tax jurisdictions in the United States alone, each of which with their own exemptions and rules. This makes it impossible to keep up with these differences on your own, hence the need for a piece of software to automate it for you.

Next, there will be a big bush in paperwork. Remember, in each state that you’re doing business, you’ll have to file a tax return, in addition to filing an initial form upon conducting business in that state. This means you’ll need to keep together your receipts and extend your file cabinet to have everything in place in the event that you’re audited.

This one is a bit strange, but you’ll lose your ability to position on price. Think about it: you’re already asking customers to pay for shipping, and now you’ll have to ask them to pay an addition 7-9% sales tax. This means that you won’t be able to position on price as much, creating the shift to proving the benefit of the product and ramping your customer service.

Number four, your margins are going to shrink. Again, if you have to justify a higher price to your customers, you’ll have to shrink your overall product cost to compensate for that extra charge. This, in turn, will make your margins smaller, meaning you’ll need to find ways to boost your income.

Finally, there will be a shift towards local marketing. The reason for this, quite simply, is that you’re used to doing taxes in your own state. Thus, if you sell more in your state, it will lessen some headaches. This means that you’ll want to focus more on local marketing via local search, Yellow Pages, PPC, etc.

We’ll keep you posted as we learn more about this proposed internet sales tax straight from the halls of Congress. If you have any questions, we’re happy to help. From me to you, happy selling!