This week, the Senate will vote on The Marketplace Fairness Act. This bill will help the top 1% of online retail businesses by forcing smaller companies like Business-Supply.com to raise prices to cover the administrative costs of collecting more sales tax. Early indications are that the bill will pass and move on to the House. Should it get through Congress and get signed by the President, the results will be disastrous for Business Supply and thousands of other small-medium online retailers. And, it will also mean more money out of your pocket as a consumer—both in sales tax and in higher prices on products.
A quick summary of the bill: currently, online retailers are not required to collect sales tax in any state where they don’t have a physical presence. The Marketplace Fairness Act would require sales tax to be charged on all orders regardless if the retailer has a physical presence in the state (the bill does exempt businesses which have less than $1 million in yearly out-of-state sales). The goal of the bill is to remove any ‘advantage’ that an online retailer has over a traditional brick-and-mortar establishment.
Sounds fair, huh? Only the bill will do the opposite of what it purports: it will make the landscape unfair for small-medium businesses online and give a leg up to the retail 1%ers such as Amazon and Wal-Mart. Here’s how:
The cost of collecting sales tax on every purchase will financially cripple the small online retailer. Currently, there are 9,600 different taxing jurisdictions in the U.S. The bill proposes to reduce that to 27, but that will still require significant resources (assuming the Government is able to figure out how to cut it to 27 jurisdictions). That means hiring an additional staff member, buying additional sales tax software, and configuring it. You’re talking about tens of thousands of dollars—if not more—in costs.
IT resources are precious and scarce for small-medium online retailers. Integrating new tax software subscriptions into an existing Ecommerce platform takes time and a significant amount of IT resources. For retailers like us, we need to utilize those scarce IT hours for making our sites better for our customers and for innovating. Not correcting sales tax tables.
Amazon and the other Ecommerce 1%ers know that they can absorb these costs (Amazon already has the foundation in place and sells a sales tax service to merchants) without having to pass additional costs on to the consumer. These companies know that smaller online retailers will have to inevitably raise prices to stay compliant. The result? More customers flocking to the retail 1%ers.
eBay’s CEO John Donahoe is leading the charge against this Bill, and I applaud his efforts. However, we disagree on one point. Donahoe wants to raise the cap on revenue from $1 million to $10 million. While that’s admirable, I think status quo is even better. Why should Business Supply, eBay, or even Amazon have to spend incredible amounts of resources to collect sales taxes where they gain zero benefits? Granted, Business Supply isn’t the one being taxed—it’s the consumer—but it sure feels like “Taxation Without Representation.”
Please let your Senator know that you don’t support this bill.