The growing patchwork of state internet sales taxes that has emerged since the landmark 2018 Supreme Court decision regarding out-of-state online sellers has hamstrung small businesses with costly compliance burdens.

Halstead Bead Inc. an online jewelry supply store in Prescott, Arizona, has found complying with the online sales tax vexing.

"It’s been quite challenging," said Brad Scott, the company’s finance director. "So far, we have spent close to 4,000 hours [since June 2018] that we have diverted away from regular operations towards this."

The company sells jewelry components and supplies to jewelry makers around the world. It currently complies with roughly 30 state laws that either require it to disclose that it is doing business in the state or to collect and remit taxes. Scott said that his company is complying with nearly “12,000 different tax jurisdictions” between the states.

Online behemoth eBay noted during a shareholder call on Tuesday that it too has been negatively affected by the tax and that small businesses are struggling with the tax.

“This rollout happened faster than anticipated and affected small businesses and consumer sellers, requiring Marketplaces to collect and remit on their behalf,” said Scott Schenkel, interim CEO at eBay.

During a shareholder call last October, Schenkel said that online customers would shop, but then abandon their carts at the online checkout because of the price increase from the online sales tax.

“For higher-dollar items is where we see buyers abandon the cart at checkout because they're, like, ‘Oh, wait a second, why is it more?,’ depending on the sales tax that were being added,” Schenkel said.

Scott’s company has experienced carts abandoned at checkout and dubbed them “dead carts.”

But complying with state-level tax law is the biggest issue since there is no consistency between the states on how to administer the law.

“There’s been no uniformity whatsoever in how to manage those. It is state-by-state in what their requirements are of us, in terms of the paperwork that we have to collect,” Scott said.

Online shoppers have always been obliged to collect and remit sales tax, although compliance was low. But the 2018 South Dakota v. Wayfair ruling required many businesses without a physical presence in South Dakota, but still making online sales in the state, to collect sales taxes.

The ruling got the attention from owners of online stores such as Scott’s.

“This isn’t a new tax … but after the Supreme Court’s Wayfair decision, it is far easier for states to require remote sellers to collect and remit [online] sales taxes,” said Jared Walczak, director of state tax policy at the Tax Foundation, a think tank located in Washington, D.C. Since the Wayfair ruling, 43 states have adopted online sales tax laws for remote sellers. Before the decision, only two states had such laws on the books, according to the Tax Foundation.

During the Supreme Court hearing, one argument against taxing online remote sellers was that it would create burdensome compliance requirements for small businesses.

Walczak also notes that the purchaser pays the tax, but that does not include compliance costs, which are shouldered by the companies.

“This is a tax on consumers, not on the business itself,” he said. “It really comes down to a question of how difficult compliance is, and some companies are struggling with compliance.”

Since June 2018, Halstead Bead has spent $175,000 to comply with the levy while collecting and remitting $75,000 in taxes.

Companies such as eBay and Halstead Bead have called on Congress to weigh in on this situation with an answer that would hopefully streamline compliance.

“The federal government needs to do this for us,” Scott said.

