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IT SMBs Need to be Protected from New Interstate Tax Compliance Burdens

This guest editorial is by Ron Culler, chief technology officer of Secure Designs, a managed security services provider based in Greensboro, NC. 

Like 90 percent of our customers, we are a small business – we have only 22 employees. Most of our clients are small businesses with just a handful of computers. Last year, our company revenue was $3.4 million, and over the last two years, Secure Designs has been on the Inc. 500/5000 list as one of America’s fastest growing companies.

Our company provides managed Internet security services to small- and mid-sized businesses (SMBs) and currently manages more than 6,000 firewall appliances in all 50 states. In addition to managing firewall equipment directly for our customer base, we provide firewall services and equipment to telecom companies (ISPs and service providers). For our telecom customers, we purchase, manage, configure and ship equipment to many locations. As a result, we are subjected to regulations that affect telecom companies such as property, sales and use taxes.

Increasingly, overlapping state tax requirements have created excessive compliance burdens for our business. As with many tech SMBs, we must both understand and be compliant with multiple interstate tax requirements.

What makes this even more complicated is that some of our customers are direct purchasers. Therefore, we have to look at the tax regulations for that particular customer in that location. In cases where we have a managed service provider in, say, the state of New Hampshire and they have customers all around the area – Connecticut, Vermont, Massachusetts, etc. – my customer is in New Hampshire and their customers are all over, but I’m the one providing the service. Who is ultimately responsible for collecting and remitting any required tax?

These scenarios pose a difficult burden on Secure Designs. We need to research the state and local tax laws in every municipality in every location we sell a piece of equipment or provide service. Or, we have to rely on the company we’re selling to, who resides in that state, to interpret the tax laws. As city and state governments search for revenue streams to increase, the burden put on small companies such as Secure Designs is impractical without a staff of tax specialists tracking each municipality’s tax laws and changes. Unless you have a lot of money to do research on every location in which you do business, you just have to struggle through it. The risk is a large, unexpected tax bill. You just don’t know.

Ultimately, small businesses need to be protected from complicated interstate tax compliance issues. We’re happy to collect on pay taxes where we operate, but subjecting us to tax collection and compliance from all states and local taxing jurisdictions will be a huge burden. It’s this uncertainty that drives business people crazy. You want to budget what your costs are going to be and what you can charge, so you know what your profitability will be. But when the tax requirements randomly change, it can be unbelievably challenging.

We appreciate CompTIA and TechVoice’s important role in protecting tech SMBs from the one-size-fits-all requirements of “the Marketplace Fairness Act (MFA) of 2013.” This legislation would require businesses to collect and remit state sales taxes on sales of goods and services made into other states. While the MFA does contain a “small seller” exemption, which exempts those businesses that have $1 million or less in remote sales, this approach does not address the real concerns of us and CompTIA’s other small business members.

Rather than a small seller exemption, we believe that the exemption should apply to a small business. As written, the MFA would exempt billion dollar corporations that had less than $1 million in sales. However, a small business with total revenue of $1.1 million would be caught up in this new requirement if $1 million of its sales were made into other states. The legislation does not consider the size of the business and its ability to absorb these new compliance requirements. It only considers the gross amount of interstate sales.

I support CompTIA’s position that the MFA should balance the rights of states to collect sales taxes with the ability of small businesses to cover these new compliance costs. We certainly agree that we should pay taxes where our office and salespeople reside, but requiring us to file sales tax returns with every state where we have a single customer is just too costly. To learn more about Capitol Hill issues affecting small businesses, visit www.techvoice.org.

Tune in to www.techvoice.org during SMB week, June 17 to 21, when we’ll share real life examples of policy issues confronting SMB technology companies and what we’re doing to help them be heard on Capitol Hill. Then sign up to have your voice heard!