Have you heard about the looming danger of a "national sales
tax" on Internet retail transactions?
Don't panic. It's just a bit of hyperbole in the high-stakes debate
over a bill before the US Senate this week that could eliminate the
last vestiges of a competitive edge that Web retailers have enjoyed
since their earliest days-that is, exemption from state sales
The Marketplace Fairness Act would allow the states to collect
sales taxes on Internet purchases made by their residents,
regardless of whether the seller has a physical presence in the
Effectively, that would mean that virtually all Internet sales
would be subject to sales taxes, although an exemption is made in
the bill for small retailers. A critical issue in the debate is
defining "small." The bill currently excludes sellers who gross
less than $1 million a year.
To understand the likely impact on consumers and business, you need
to to look at it from the viewpoints of those who support it and
those who oppose it. Oddly, Web retailing's iconic giants,
) find themselves on opposite sides, for reasons that go far to
clarify the issues .
The Anti View
In 2013, it is difficult to argue that those feisty little Web
entrepreneurs need a break from taxes to help them build their
businesses and compete against the all-powerful big-box stores.
However, opponents of the Marketplace Fairness Act argue that it
swings all the way in the opposite direction, not only removing a
benefit that the Internet enjoyed but saddling it with a crushing
burden that no brick-and-mortar retailer need face.
Candidly, it does sound like a nightmare scenario: Online retailers
would be required to calculate, collect, and remit taxes from about
46 jurisdictions (several states don't have a sales tax). And, they
could be audited by any of those jurisdictions.
It gets more complicated from there. State sales tax codes tend to
be stupefyingly messy, and they change constantly, with exemptions,
for example, for food, including fruit juice, unless it contains
less than 70% natural fruit... You get the idea.
Worse, local governments can have sales taxes, too. Opponents of
the law claim there are actually 9,600 tax jurisdictions in the US,
The law includes a requirement that states must simplify their
sales tax systems, and provide software to retailers, in order to
collect taxes on online sales. (Yeah, that'll work.)
A coalition of 15 taxpayer advocacy groups and conservative think
tanks have sent
an open letter to Congress
opposing the bill. They argue that it would greatly expand state
tax authority by eliminating that "physical presence standard."
It took the
Wall Street Journal
, though, to come up with the catchy phrase that defines the
proposed law as a
"National Sales Tax."
owner Rupert Murdoch: Overkill, mate.)
A more measured tone is taken by eBay, whose CEO, John Donahoe,
calls the legislation
"wrong-headed and unfair"
to small businesses and consumers. Over the weekend, the company
called on its eBay store owners-and there are millions of them-to
pressure Congress to change the bill.
Rather than outright opposing it, eBay seeks to increase the
exemption for the smallest businesses from $1 million to at least
Obviously, nobody is making $1 million a year on eBay from junk
pulled out of their garages. But a writer for
CNet points out
that a seller grossing $1 million a year might be netting about
$83,000, and that is mom-and-pop store territory.
The Pro Argument
Now, this is really wild: Amazon favors the Marketplace Fairness
Amazon, which spent years fighting every state that tried to force
it to collect sales taxes based on that "physical presence" rule.
The company shut down regional warehouses, jettisoned small
business partners, refused to hire employees who resided outside
its home state. All to thwart any state that wanted it to collect
Then its business strategy changed significantly. For the past
couple of years, Amazon has been investing heavily in new
warehouses from coast to coast in order to speed delivery to its
customers, giving it a different advantage over its competitors.
So, Amazon is already collecting sales taxes in many jurisdictions.
Many of its "partner" stores will be covered by the exemption. It's
in a good place if the bill becomes law.
Other backers of the law are more predictable. The associations
that represent big-box retailers, including
), have lobbied heavily for it. These retailers have always had to
collect sales taxes online, because they indisputably have a
physical presence in every state.
State and local governments, unsurprisingly, want this law badly.
that they lost $23 billion in taxes to online shopping in 2012.
They believe that their Main Street businesses may get a lift, too,
if their online competition loses that edge.
At this point, it looks like the bill has broad bipartisan support
in the US Senate. If it passes, it goes to the House of
Representatives, followed by an army of lobbyists arguing for and
President Barack Obama has signaled that he will sign the
Marketplace Fairness Act if it reaches his desk. In a
press briefing Monday
, Press Secretary Jay Carney said the White House supports the
legislation on the grounds that it will "level the playing field"
between Main Street business and their Internet competition, and
bring in much-needed revenue for state and local services.
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