Sales and Use Taxes: Further Investigation of the Growing Administrative and Compliance Costs for Small Businesses.

Since the 2018 ruling from the Supreme Court on South Dakota v. Wayfair, the discussion of sales tax collection and its impact on small and micro-sized businesses has become increasingly heated. As the cost of sales tax compliance for the small business owner is six times greater than that of the large retailer (PricewaterhouseCoopers, LLP, 2004), researching methods small business owners use to ease 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 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, a further six 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 two interviews with tax and accounting professionals to provide a better understanding of the compliance issues. The interview data identified a range of important themes and issues related to the sales tax impact on small businesses, which included: the relative importance of sales tax revenues, the complexity and confusions within the system, the push for online filing, a lack of audit and educational resources, the importance of record keeping, the use of accounting software packages, and the reliance on costly third-part accounting services and tax advisors. 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. [ABSTRACT FROM AUTHOR]