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Are Small Businesses Properly Represented In Online Sales Tax Debate?

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Are Small Businesses Properly Represented In Online Sales Tax Debate?
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The Marketplace Fairness Act has been regularly described as a bill that would help small local businesses compete against the large online businesses that dominate the playing field due to them not having to collect sales tax. This description is a little unfair, however, as it often ignores the growing number of small businesses that are courting consumers online instead of through a physical storefront.

Do you think the Marketplace Fairness Act would benefit large and small businesses equally? What about small businesses that primarily deal in online sales? Let us know in the comments.

The Seattle Times recently reported on the interesting case of a small online retailer called Puget Sound Instrument. The owner, Peter Ollodart, became increasingly concerned by the progress that the Marketplace Fairness Act was making through Congress. The bill, which would require all online retailers, including his, to collect sales tax on purchases, would cut into what little profit his small business makes.

To put this into perspective, Ollodart says that his 2012 tax return shows that he made $350 in net profit. This was after his company sold $3.5 million worth of electronics to mostly out of state customers. He suspects that having to file state sales tax for 44 states would put him out of business.

With his business’ livelihood on the line, Ollodart flew out to Washington D.C. to ask that lawmakers oppose the bill. Unfortunately, only his local Congressman, Rep. Dave Reichert, met with him. The lawmaker wouldn’t say whether or not he would vote yes on the bill, but his spokeswoman later told the paper that he didn’t “want to place any undue burdens on small businesses.”

Despite Ollodart’s and many other small online businesses’ efforts, the Senate voted in favor of the Marketplace Fairness Act back in May. In fact, the bill was passed by a wide margin with 69 senators voting in favor of it while only 27 voted against it. Of course, the bill’s success in the Senate doesn’t necessarily mean that it will do well in the House. In fact, House Speaker John Boehner has said that he probably wouldn’t vote in favor of it.

Of course, minds can change when money is involved. That’s where the lobbying comes in, and it’s where big business has a big advantage. Amazon has been spending millions of dollars over the past few years to ensure that Congress passes the Marketplace Fairness Act. Why would an online retailer support the legislation? For starters, Amazon already pays sales tax in every state where it has a physical presence, and it’s building more fulfillment centers in new states all the time. As you can see, Amazon has little to lose with the passage of the bill.

Aside from Amazon, big retailers like Best Buy and Sears are pushing for its passage via the National Retail Federation. The lobbying group had this to say when the bill was passed by the Senate:

“This bill and its companion in the House will level the playing field for all retailers – both online and off – while safeguarding states’ rights. And the bill does it all without raising taxes, new government mandates or adding to the deficit. NRF and our broad cross-section of members will work closely with our bipartisan sponsors in the House, Reps. Womack and Speier, and Chairman Goodlatte to ensure that efairness is debated honestly and on its merits. When brought to a vote, we believe the House will pass the bill and it will be signed into law.”

Both big business and small business can agree that the debate over the Marketplace Fairness Act is about fairness. It’s what that fairness entails that gives rise to debate though. Big business claims that its losing customers to online businesses due to their ability to offer lower prices on account of not having to collect sales tax. Small online businesses, however, claim that having to collect sales tax would only make their lives more complicated, and cost them thousands of dollars more a year in hiring accountants to take care of said taxes.

This is where the opposite comes in. A number of small online retailers, Americans for Tax Reform and eBay have all been pushing against the legislation. eBay in particular feels that the Marketplace Fairness Act would negatively affect small businesses. That’s why it’s pushing for an exemption that would make it so that any business that brings in less than $10 million a year annually would not have to pay out-of-state sales tax. The current exemption is $1 million in annual sales so it’s easy to see why small online businesses like Puget Sound Instrument have much to fear from it.

That’s why Ollodart and other small online business owners are going to continue fighting against the bill. Unfortunately, there’s not a lot of hope among them as they are consistently outspent by the big box retailers that continue to claim that they’re doing this with the small mom and pop shops in mind. Those mom and pop shops and increasingly turning to the Internet to do business, and the passage of this bill would severely limit their ability to do said business.

It’s the ultimate irony – big business rushing to save small business with a bill that may end up only hurting both in the long run.

Do you think small online businesses should be exempt from the Marketplace Fairness Act? Should big retailers take into account how small businesses have changed in their debates? Let us know in the comments.

[Image: House Press Gallery]

Are Small Businesses Properly Represented In Online Sales Tax Debate?


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  • http://www.frogdice.com Michael Hartman

    The justification for taxes is not to give one type of business a competitive advantage over others.

    This is a gross abuse of power.

    • http://shavetools.com james

      If they really want to apply sales taxes like this, the only sane method is to have it handled by payment processors, not small businesses.

      While it would be a bit of a hassle for PayPal, Amazon payments, Authorize.net, and others to implement, the cost would be relatively minor, and it would put online businesses on the “even footing” that brick and mortar claim to be so worried about (well except for the reality that sales tax has always been roughly the same as shipping costs anyhow…), since there would not be an undue administrative burden on businesses that just can’t handle it…

      • Mike

        Impossible! How would the third party processor know the cost of sale vis. cost of shipping? Many different rules and rates apply across the USA where some localities do include shipping while others don’t.

  • http://www.gayweddinggifts.net allen

    I’m confused. He sold 3.5 MILLION dollars of stuff and only made $350.00? If that’s the case, I don’t think collecting state taxes are his biggest concern. :)

    • veritaserum

      It is not uncommon for small businesses, especially online retailers, to run break-even businesses. When you run a break-even business, a 30,000 integration and compliance cost can crush you.
      MFA is a major threat to small online retailers.

    • Eva

      Many businesses must run in deficit or near deficit conditions at first. Setup and start up costs are high. Many business require a lot of infrastructure to get fully competitive. He is likely just ramming all his profits back into his business in hopes of gaining position for future larger profits. Instead of blowing all his cash on personal items, he is investing it in his business. Big businesses would probably be happy if new laws could help them crush startups like his who would otherwise become their competition. Once all the smaller businesses are crushed, the few big guys that are left can start raising their prices with impunity.

    • Mike

      Nor do I understand how he even afforded to fly down to DC…??? Something definitely is up with that guy.

      However, I would have gone down myself too since this bill is rotten.

    • http://www.hoveringhelicopter.com mike

      Allen,

      I thought the same thing when I first read that line. But I wonder how much the owner Paid himself to only allow for a $350 profit?

      Hmm…..I wish I had a $3.5 Million dollar business.

  • http://www.webdesignjustforyou.com Eileen Forte

    I agree with Michael Hartman. Large businesses that are supporting the online sales tax when they are not going to be affected by it are clearly doing so only to gain an advantage over their competition. To pass the tax bill would only benefit the government (who receives the taxes, and big business (by giving them an advantage over the small business competing with them online). So much for allowing/helping the regular guy survive if this bill is passed.

  • http://dark_ages_games.com Anita Headley

    YES. I think small business should be exempt. This would effectively shut down my online store. I only do about $10,000/year of business. Trying track the sales tax rates for all the locations in all the states and then modify my web store to calculate sales tax for whatever city/state the buyer is in would be nearly impossible without bankrupting the business. I have trouble keeping track for the different locations in my own state ( I sell at fairs).

  • Dee

    Only states you live in or do business in have ANY authority you or your business. This is not only bad for business, it’s bad for freedom. This bill has nothing to do with “fairness”, it has to do with money and power.

    Online stores have different costs and overhead than physical stores, they have costs physical stores don’t just as physical stores have costs that online don’t. physical stores have an advantage in places and online stores have an advantage in places. So just get out of the way and let the free markets work.

  • Reality

    Although taxes are an issue, the real issue behind everything is the general price level of goods and the greed of corporations.

    In 2009, pack of gum cost me 69 cents. Now, it cost me double that. Nothing has happened in society to precipitate that sort of increase. That increase was artificially created by corporations and hence, the wealthy that own all the stock in those corporations.

    The sad part is that more people care and are outraged by Miley Cyrus shaking her butt than they are about the NSA spying program, congress literally not doing anything, our record incarceration rates (we are less than 5% of the world’s population but have 25% of the world’s prisoners), and the extensive reach of the Patriot Acts (most people have not even read them to understand just how far they go).

    We are quickly becoming a two class system and a police state. Our country is fundamentally changing. There is most certainly a shadow government in the world that is controlling all of this. This isn’t a random event.

    Whenever a society’s middle class becomes decimated, major problems and social upheaval occur. Ladies and gentlemen — we really have major problems coming in this nation. This is just the beginning.

    • http://www.hoveringhelicopter.com mike

      Well Said.

      I’m glad I don’t have any kids!

  • http://corporationsofnevada.com Jennifer

    There is absolutely no justification for a sales tax law to be implemented at the national level, when every state and locality has its own laws regarding sales tax.

    This is clearly just another way for big corporate to hurt small business because they want more of the pie than they already have. As if these jerks aren’t rich enough, they have to keep taking more and more and more and MORE from everyone else, making it increasingly more difficult for citizens to make a living.

    The only entities who will benefit from this are the government and of course the OWNERS of the government: big corp. Everyone else will be hurt by it.

  • arnie

    Not having to charge sales tax is a big advantage. Not only is it unfair to small business, but it cost the states money. It causes more unemployment and steals money which the states use for infrastructure repair. It is a retail sale into my state which makes
    me collect sales tax, therefore the person selling my customer product has an unfair advantage.

    • Eva

      I sell online and I AM a small business. Many online sellers are small businesses. In fact, online is something you can do even if you are so small you can’t afford to rent a building or to buy enough to fill a whole store. I started my online business with only $350.00 which at that time was half of my entire savings account. It’s the ultimate size small business! How can you say my business causes unemployment? I buy product from other businesses all over the country, including my own state, I pay people to help me, then I pay my local shipping company a bunch of money to ship all over the country. Most of my money goes back into my business creating more jobs. I pay state taxes on everything I buy in state plus I pay state and federal taxes on every scrap of income I make that does not go back into the business. How do you get that I ‘stole’ money from anybody? And I have to be so good that I can convince buyers to buy my product with only a few photographs and verbal statements, and they must accept waiting days for it to arrive, and then they must pay shipping costs which are usually much higher than any sales tax would be. Plus I must take time to carefully pack each item and I must do it all so well that no customer is ever dissatisfied and gives me bad feedback. How many brick and morter stores can say they make all their customers that happy? How many could get the quality feedback that I get? In many ways, online sellers are already at a HUGE disadvantage.

    • http://www.dibeads.com Robert Brown

      Hi Again Arnie,

      I run both a Retail and Internet business.

      If you were aware of cost and work involved in an Internet business you would find it balances out.

      The advertizing cost alone are about 100 times higher for the internet and much harder to get a return. In a Retail Store if I get 10 customers, 9 will purchase something. On line we only get about 3 percent in sales for all the visits to our site. The National adverage is between 2.5 and 5 percent so please don’t think it is all Roses.

  • T N Tweeten

    Monitoring and collecting sales tax for individual states is an inordinate percent of cost for small business and will consume a higher percent of net profit than for large businesses. Small business often pay a higher percentage for lower volume of swipes for credit card purchases. The same principle applies to print adds. It is all about distributing fixed expenses over the largest possible volume of gross sales. Is the next step to require small businesses to have brick and mortar stores again to force them to be on an equal footing with larger stores that can again absorb fixed expenses, in this case a building, with higher sales volumes?

  • http://www.hadeninteractive.com Kim

    It’s a really complex issue but I don’t think the MFA will pass, especially considering the opposition it has in the House, that it’s in a subcommittee, and that the politicians in the subcommittee have displayed that they don’t like the current bill. Check out this great analysis about the MFA and likelihood of passing.

  • Alan C

    The people who push this kind of thing, regardless of their motives, have no idea of what would be involved in compliance with this law. Yes, there is software that can help vendors bill the thousands of different rates that apply across the country, but it has an implementation cost and ongoing monthly costs that would impact small businesses that sell nationwide much harder than larger businesses. On top of that, those same businesses would need to file monthly or quarterly returns to all states and break down each state’s district taxes. Small businesses simply don’t have the bandwidth for that kind of activity or the money to contract it out.

    As for the comments about corporate greed and fairness, they don’t address the issue and display an ignorance of both basic economics and of how governments work endlessly to increase their revenues.

    • arnie

      Well maybe its would be a better solution if we started a VAT tax on all internet sales. That would be a way to somewhat level the playing fiels.

      • http://www.dibeads.com Robert Brown

        Hi Arnie,

        Lets just drop all Sales tax everywhere, that would solve the problem for sure.

  • http://Mabuzi.com Kevin

    Governments react to lobbyists and large scale public discontent so unless SMB all stood together and applied pressure any bills passed are for the lobbyists.

    Currently in Australia for this election the SMB’s and business ran a To Big to ignore campaign as SMB’s are by far Australia’s biggest employer and tax contributor.

  • http://Mabuzi.com Kevin

    No not really as the lobbyists and pressure groups win the day

  • http://www.ThomasCarlson.org Thomas Carlson

    Zach,

    Please consider doing an article and more research into this area.

    Click on my name above I wrote an article Titled:

    Main Street Images Used to Deceive Politicians and Consumers: Marketplace Fairness Act

    An article written on July 3, 2011, by Angel Djambazov on Geek Wire shows, “The Alliance for Main Street Fairness (aka Stand with Main Street), which was so successful in bringing about the victory in Illinois against Amazon, was founded by Wal-Mart and other big-box retailers. Soak that in for a moment. Wal-Mart backing something with the words “mainstreet fairness.” That should either make you laugh or sick to your stomach.”

    • arnie

      Well, maybe for a change big business and small business are affected and on the same page.

  • Eva

    It’s not true the online businesses have an ‘unfair’ advantage. First of all, every item has the cost of shipping added to the price. Most price advantages are wiped out by the added shipping. For heavy or delicate items, the shipping costs are HUGE! Second, buyers can’t touch or feel the item and must wait at least a few days for the item to arrive. Besides, even brick and morter stores can sell online if they like, it need not be either or, and no one is stopping them. If they already have product, then all the easier for them to get started. The whole ‘unfair’ story is just a ploy to try to convince the people to allow yet more taxes on the people.

    And yes, the other problem is the implementation of it would be almost impossible for even medium sized businesses. The reason large internet sellers are for it is that only they have the resources to do it and it would drive out small and medium sized internet sellers from the market place. They want to drive out their competition. Keep in mind it is not just every state that has a different sales tax but every city within every state. Los Angeles has a different sale tax than San Diego and every tiny neighbor city also has a different sales tax. That’s millions of different sales tax rates to keep track of with part of each individual tax going the individual city and part going to the state itself. I agree with the person who suggested a flat tax as being a more reasonable option.

  • Sandra

    Not only complying to 45 states + DC can put a huge burden to small business, but think about the possible audits. If an MA business sells goods to CA and collect CA tax, then we can bet CA government will want to reserve the right to audit that MA business. And what if the CA government agent wants to audit that MA business? The business probably will have to hire a CA accountant or CA tax attorney to represent him/her which means more cost.

  • http://sverteph-enterprise.com Trev

    The whole process of small businesses promoting and selling products online for profit is extremely debatable…and the gathering of sales tax can depend on whether you trade simply locally or on a worldwide scale. It is a very complicated structure and dependant on ISP server location, supplier location, and purchaser location.

  • http://www.steponedanceshoes.com Rose Hillbrand

    No way! As a small business owner myself, it takes HOURS just to update all the tax rates in the system whenever Ohio has a rate change! There is absolutely no way that we would be able to update and maintain tax rates for the entire country!! Only the very largest online retailers will be able to comply with this. I truly believe this bill will put the VAST majority of small online businesses out of business. It is a travesty that it got through the Senate!! We small business owners need to stand up against this bill with all our might!

  • erne kegel

    I am tired of collecting taxes for the government without any compensation. I even pay Business and Occupation taxes for the privilege. That’s just in MY state of Washington. And if I make an error, I am liable, could be fined exorbitantly. Imagine doing this for every state that has a sales tax… horrifying!
    I have strayed away from doing business out-of-state for that reason,
    effectively denying myself the option of selling “on-line”.
    This is a really STUPID idea.

  • http://www.dibeads.com Robert Brown

    I would not have a problem charging sales tax if it went to the State I operate out of “Arizona”.

    If they pass this tax, many on-lines business will just move across the border to Canada, Mexico or some other Country and just ship back into the US without charging any tax. Countries like China and others that are already running Retail websites and shipping direct to consumers in the US will not have to collect Sales tax, and consumers will just buy from them. I know one large internet business that is already moving his offices to India for just this reason. Go ahead Congress burn us down.

  • http://www.dibeads.com Robert Brown

    If Kansas or California or any other State can force me to charge and send them Sales tax on my Arizona based Internet business do I have to charge customers from Kansas or California or other States their State sales tax to the same customers who might come and visit my Retail Store in Arizona and pay that tax to Kansas or California or where ever they are visiting from.

    If they can do this with internet sales then all tourist should be charged a tax for any purchases they make while on vacation when they shop in a Retail Store based on the State they come from, and are we going to charge them tax for both the State their from and the State they are visiting. After all there taking the merchandise back to there home state so the same principle should apply.

    WOW! We can ask each customer where there from and check there ID and if they are from another State we can stop every thing and see what tax to charge them and of course we will also have to charge them our States Sales Tax that we are required to do.

    Internet business’s are shipping all over the World from many different Countries. It’s uncontrollable as to who should pay or collect taxes.

    I say NO to any internet sale tax. Why don’t we just eliminate all Sales tax all together, that would be fair to everyone, but maybe the tax collector and we could get out the “tar and feathers for them if needed”.

  • http://www.barnaclekove.com BK

    In the first place, I disagree that brick & mortar stores are at a disadvantage. They can also sell online … no one is stopping them from doing so. They don’t have to deal with the cost of shipping which has been the biggest pain in my butt since the “big dogs” often offer free shipping. Tax would be charged to the customer so it isn’t going to be an “out of pocket” expense as free shipping is now!

    The way I am looking at it is, if it does pass as is with the exemption for those with less than 1 Million Dollars in annual sales, it may end up being more of an advantage for the small businesses. I am lucky if I break $100,000 in sales for my seasonal online biz [sunscreen sales]! So if this tax situation would bring me even more business I’ll just shut my cyber doors once I reach $999,999.99 in sales each year!

    If it is intended to make things “fair” then either Brick & Mortars should have to collect tax for the State where the buyer lives or we charge & pay taxes at our own local State rate, just as if customers were standing at the checkout counter in our physical store. I can’t see B&M’s wanting to have to do that anymore than online stores want to. So where does the “Fairness” come into play??

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