Marketplace Fairness, or Marketplace Destruction?

by Gwen Carrington | eCommerce, eCommerce Fulfillment

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The Marketplace Fairness Act of 2013, which would require eCommerce retailers to collect sales taxes for online purchases in states where they do not operate, has been getting a lot of press, since its recent passing in the Senate.   The debate continues as it moves to Congress with a major disconnect between those that support it, such as Amazon and major brick and mortar retailers and those that would like to amend it such as Ebay.

According to research from the University of Tennessee, states have missed out on more than $11 billion in uncollected taxes in 2012 from online purchases.  Currently, the burden is on the online consumer to pay sales tax to their home state, but most never follow through when they file their annual taxes causing states to lose out on that income.

According to eCommerce growth estimates from companies such as Forrester Research, this is a number that could grow as much as 13% in 2013 alone.  Large brick and mortar retailers feel that online only retailers are gaining an advantage by not having to charge taxes and would like to “level the playing field” so that all retailers are on equal footing when it comes to taxation.

But what does it mean for all the growing eCommerce retailers that could potentially be affected by having to collect sales tax from their consumers?

The impact to web only retailers – that sell more that $1M a year in online revenue – will be the greatest which is why companies like eBay are trying to have the threshold raised to $10M a year in online revenue or more than 50 employees so they are “protected from new burdens that harm their ability to compete and grow,” said Brian Bieron, Ebay’s senior director of global public policy.

Ecommerce retailers that are selling $1M are typically in growth mode and feel that it will be burdensome to collect taxes for multiple states, even with state-provided software called for in the bill. The administrative and regulatory burden to pay taxes in all sales tax states will be high and may require them to hire additional employees to deal with these changes and to ensure compliance.  This will require changes to their business strategy and can potentially stifle creativity and entrepreneurial spirit.

Webgistix CEO, Joe DiSorbo, who works with hundreds of eCommerce retailers who would be impacted by this bill, believes that this will hurt small businesses and that the winners and losers are clear.

“Amazon, along with local retailers, have a vested interest in forcing every online retailers to pay the sales tax because they have an economies of scale advantage over the small retailer and they know over time this will ultimately force the small online retailer out of business.”

“The small tax advantage that eCommerce only retailers have over local and large online retailers does not make up for their lack of economies of scale. Not having to collect and pay the sales tax gives small companies the ability to be creative and entrepreneurial.  It allows them to test new business models and new ideas.  This ability to experiment cannot be understated.”

What do you think? Please feel free to share your thoughts with us.

Webgistix will be closely watching this issue as well as standing up for the eCommerce retailers.

We also suggest using resources from companies like Avalara (sales tax & compliance technology) who are closely following the debate and will continue to update information on the Marketplace Fairness Act and what it may mean for you.  http://salestaxchanges.com/