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Will the Internet Sales Tax Bill Help or Hurt the Small Business Retailer?




585040_business_buttonsPresident Obama on Monday, said that the proposed Marketplace Fairness Act, which would require online retailers to collect sales tax, “will level the playing field for local small business retailers that are in competition every day with large out-of-state online companies.”

Far be it for me to disagree with the President, but I don’t see it.

Let’s take this step-by-step. Brick and mortar stores say they’re going out of business because people are choosing to buy online instead of in their store. I believe this is true. I don’t think it’s a stretch to say that Amazon helped put Borders out of business.

On the other hand, we have my favorite grocery chain Fresh & Easy.  The British parent company says they lost over 2 billion dollars on the venture and they’re done. They’re going to sell the chain or close up 200 stores. What happened there? Very few Americans buy their groceries online, so you can’t blame the internet for that failure.

As far as sales tax goes, I’ve heard of people driving to the next state to save money on a big purchase, but I’ve never heard of someone going online to avoid paying tax. Think about it? You might save $5.00 but you’re paying $17.00 to ship, so tax free isn’t much of an incentive.

What’s really causing the collapse of the small business is the economy. The average person simply doesn’t have enough to go around, so they have to cut corners where they can which might mean buying online. It also could mean buying at Walmart instead of the mom and pop grocery store down the street. Or it means buying a used product on eBay instead of a new one at Walmart.

I might be more on board with the proposed act if the officials promoting the bill were more transparent about the reason behind it. It’s not about saving local businesses, it’s about collecting an additional $22 to $24 billion in sales tax. That’s money for schools and police and roads and social services. Who doesn’t want that?

Still, Senators backing the bill continue to say it’s all about helping small business. What about people who run a small business online. Are we really going to require that 2-man business to collect a different tax from every customer from another state? That’s an accounting nightmare.

Sen. Dick Durbin, D-Ill., has a comeback for that;

“We’re way beyond the quill pen and ledger days. Thanks to computers and thanks to software it is not that complex.”

Not complex? Four states don’t have sales tax at all so they’d have to create a sales tax department to handle the revenue from the new bill. (What’s that going to cost?) The New York Times article I read said the bill would only apply to online retailers who sell more than $1 million in goods to people in other states. So, are we talking Amazon as a whole or are we counting sales of each individual third party seller? Same goes for eBay.

Looking at this from the consumer side, I have to figure that my favorite online stores are going to have to raise prices to cover the additional accounting burden. Higher prices means I buy less. How is that helping the economy?

The only way to make this work is to create a sales tax just for the internet. A single percentage that everyone pays when they shop online. That would be less of accounting nightmare but it would still fly in the face of the states who don’t charge sales tax or only charge for certain types of items.

This week, the Senate voted 74 to 20 to take up the bill. We’ve had this discussion before and this time, I’m really worried.

What do you think? Is there any good news for anyone in this push to tax online sales?

  • Michael Bennett

    I think “it’s about collecting an additional $22 to $24 billion in sales tax” That’s it…the government, made up of a bunch of people (for the people, and the people they are “for” in this case are themselves & no one else). They don’t care about Small Business, they care about the lobby from whom they are drawing the most funds. However, to answer the question, no I don’t believe that this will help Small Business, it won’t change people’s buying habits, it will only cost us (as consumers) more…b/c now we won’t have the cheaper online option. People will still buy what they want, from whom they want at the best price.

  • http://twitter.com/sunshinetricia Tricia Meyer

    Ask the affiliate marketers in Illinois how much this legislation would HELP small businesses. Ask affiliates like me in Indiana who have spent 7 years building small businesses only to be threatened that if this legislation doesn’t pass and states continue to enact them on a state-by-state inconsistent basis,that merchants are going to stop working with me and my business will go under. What no one is saying is that states are passing these laws anyway but in such a way that affiliate marketers are losing their jobs. The Marketplace Fairness Act is our only hope at staying in business.

  • Ryan Freeman

    Absolutely this will help. Florists have been competing for years with online retailers like FTD and 1-800-Flowers who sell to customers in the florist’s local area, then send to that florist for fulfillment after taking a 30% cut. The consumer can buy online tax free from the national, or pay tax with the local business.

    It’s not the cure for florists, but it will remove one competitive hurdle.

  • Ryan Freeman

    Also, Canadian florists have been collecting taxes for different destinations for decades – it’s really not that complicated :-)

  • Damien Blummer

    These types of laws will create two groups of online businesses. Those that collect the taxes and turn them in and those that collect the taxes and keep them. So 100% of the customers pay more and only 25% or less(extimated amount) of the taxes actually go to governments and there is still way to enforce it. Do good by collecting taxes and suffer less customers, cheat (lower item cost and claim to collect taxes but not turn them in) and win! It may not be complicated or difficult to follow the law but only owners with respect for these laws will truely pay.