Sales and Use Taxes: Investigating the Administrative and Compliance Costs for U.S. Small Businesses

Amy Cardillo,Scott Schlaufman,Andrew Holt

doi:10.53703/001c.28148

Amy Cardillo, Scott Schlaufman + Show 1 more

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https://doi.org/10.53703/001c.28148

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Abstract

Since the 2018 ruling from the Supreme Court on South Dakota v. Wayfair, the issue of sales tax collection and its impact on small and micro-sized businesses has become increasingly debated. Investigating how small business owners currently deal with their sales and use tax collection burden is beneficial for aspiring entrepreneurs wishing to learn best practices and state regulators desiring to help ease the compliance burden. This study explores the accounting and administrative burdens that the collection of Colorado sales and use taxes place on small and micro-sized entities, how small business owners attempt to efficiently and inexpensively navigate the requirements, and the role regulatory agencies play in helping navigate this regulatory burden. The project utilizes an interpretivist perspective using data obtained from 50 semi-structured interviews with small and micro-sized business owners and managers in Colorado. In addition, 6 interviews were conducted with representatives from various Colorado tax-regulatory agencies to investigate the levels of sales tax support and guidance currently being provided, and 2 interviews were conducted with tax and accounting professionals to provide a better understanding of the compliance issues. Despite some assistance from tax regulatory agencies, small and micro-sized entities in Colorado face sizeable accounting and administrative regulatory burdens from the sales tax process that consume valuable management time. In the end, the most common way small businesses manage their cost and regulatory compliance burdens is through the use of an accountant or bookkeeper.

Highlights

Since the June 21, 2018 Supreme Court ruling on South Dakota v
This study only includes interviewee data from 49 small business owners and managers within a single metropolitan geographical area, it was apparent that better communication, better record keeping and a more convenient sales tax remittance system would greatly improve the relationship between small business owners and regulatory agencies
The purpose of this study was twofold: to determine 1) how Colorado small businesses successfully manage the burden of the collection and payment of sales and use taxes, and 2) what role governmental agencies play in assisting small businesses with the collection and payment of sales and use taxes

Summary

Introduction

Since the June 21, 2018 Supreme Court ruling on South Dakota v. The discussion of sales tax collection and its impact on small businesses within the United States (U.S.) has become increasingly heated. This Supreme Court decision, as well as other debates about sales tax, are most commonly viewed from the perspective of large retailers, such as Wayfair and Amazon. When discussing sales tax, 57 percent had “significant concern” about navigating various state tax rules and deadlines, 56 percent had the same level of concern about keeping abreast of state tax rate and payment date changes, and 45 percent of respondents had significant concern about the threat of tax liability resulting from inadvertent errors and the threat of increased audits The report estimated that one-third of sales tax filers spent at least a full work week each year on sales tax compliance issues

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