By Joe Popp, JD, LLM,
principal & director of state
and local tax services,
[email protected]
(Dublin office)
The True
Cost of
Internet
Sales
DIFFERENT BUSINESS
MODELS HAVE
DIFFERENT COSTS
Starting a business no longer means that
you have to be held back by limited foot
traffic, geographic barriers and strict zon-
ing commissions. Thanks to the growing
popularity of the online marketplace,
anyone with business savvy can launch
a product and sell their wares online near
and far – and at a much more affordable
rate. Right?
Well, that might have been the case in the
not-so-distant past. But since the U.S.
Supreme Court ruled that physical pres-
ence of any sort is no longer required for
a company to have to register with a par-
ticular state’s tax department or collect
their state’s sales tax, the cost of doing
business online has gone up.
6
Since the South Dakota v. Wayfair deci-
sion, nearly every state across the nation
now requires businesses to pay taxes if
they exceed a specific dollar amount or
number of transactions over a 12-month
period. And it probably comes as no sur-
prise that the rules are in no way stan-
dardized among the states. Additionally,
other triggers that require businesses
to pay taxes in particular states are still
in play, such as third party fulfillment
through Amazon and other long-stand-
ing physical presence rules.
Before you decide to launch your busi-
ness, or to take your business online,
carefully consider all costs associated with
operating a traditional brick-and-mortar
business alongside the true cost of operat-
ing an online business. The costs associ-
ated with each are, indeed, different – but
that doesn’t mean that one is necessarily
cheaper to operate than the other.
Let’s take a closer look.
Brick & Mortar Business
Being able to literally open your doors
for business also means opening your-
self up to a lot of operational costs, like
rent, utilities, security and maintenance.
Staffing costs are likely to be higher too.
That being said, when managing a brick
and mortar business, it’s pretty much
“what you see is what you get.” There
are, generally speaking, no hidden costs
and fewer complications thanks to the
storefront’s single-tax rate.
Online Business
At face value, it might appear to cost
less to open an online business. Sure,
you won’t have many of the same costs
traditionally associated with operating a
brick-and-mortar business, but once you
consider the cost of website design, cre-
ation and maintenance; search engine
optimization; online marketing; server
rental/space; fulfillment and warehous-
ing; and shipping costs (to name a few),
the true cost of doing business online
might surprise you.
Additionally, selling products and ser-
vices in different states means you are
responsible for managing multiple tax
rates, state registrations and increased
accounting fees to file multiple returns/
states. Sales tax automation software
is available to help, but the set-up and
maintenance costs can be substantial.
At the end of the day, doing business
in a physical location versus online isn’t
an apples-to-apples comparison – the
costs are different, not less. Choos-
ing the right path for you – which could
include operating both online and tradi-
tional brick-and-mortar locations – will
require you to consider your overall
business strategy. The best approach is
to work with an advisor who can break
down the pros and cons of each sce-
nario while shining a light on the costs
associated with each option.