Online retailers battle over Marketplace Fairness Act

posted at 10:45 am on December 1, 2011 by Jazz Shaw

There’s a fight brewing over the subject of sales taxes, and it’s taking place not only in the halls of Congress, but between online retailers and traditional brick and mortar stores. A bi-partisan group of sponsors in the Senate introduced S.1832, The Marketplace Fairness Act, earlier this month. It seeks to make it easier for states to collect sales tax from online transactions, particularly in cases where the purchases are made across state lines. Such a move was bound to cause some controversy, but Governor Haley Barbour weighed in this week in support of the measure, explaining why he believes it’s time to end the current exemption for such sales.

“I am writing to congratulate you on the introduction of the Marketplace Fairness Act and offer my support for its timely passage,” Barbour wrote in a letter to Sens. Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.), two co-sponsors of the bill. Sen. Dick Durbin (D-Ill.) is also a leading supporter…

“Fifteen years ago, when e-commerce was still a nascent industry, it made sense to exempt startups like Amazon.com from collecting and remitting sales taxes in states where they had no facilities,” Barbour wrote. “But today, e-commerce has grown, and there is simply no longer a compelling reason for government to continue giving online retailers special treatment over small businesses.”

“Failure to level the playing field threatens to, and in fact has, run many of them out of business, taking with them jobs and the sizable contribution they make to not just our community culture, but to the organizations who have long benefited from their charitable involvement,” he wrote.

The debate is pitting some online retailers against others. Amazon has come out at least partially in favor of the measure, but they already collect sales taxes in a number of states, including New York, Illinois, Rhode Island, North Carolina, and Colorado. Other states have been moving in a similar direction. But another early giant in online sales, E-bay, is fighting against it.

“This is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors. It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity.” Tod Cohen, eBay’s Vice President for Government Relations and Deputy General Counsel.

I’m still not entirely sure where I stand on this one. Any time we begin a discussion with the phrase “more taxes,” my trigger finger gets itchy. But there are some compelling arguments in favor of this. In principle, I understand why there would have been a tax holiday in the nascent days of e-commerce just to help it get off the ground, and I’ve been the beneficiary of those types of deals for years. But by doing so, we also have the government engaging in a version of “picking winners and losers” as well as allowing Washington to interfere with the states’ ability to control their own tax policy.

And while I hate to invoke the word “fairness” in a discussion of the free market, it does stand to reason that each retailer in any given area should have the opportunity to compete on an even playing field with everyone else. Of course, if I were to question anything about the bill, it would be the timing. I know I do the majority of my Christmas shopping through Amazon and NewEgg, and it would have been nice to consider this after I’d already made all my purchases.

So have your say. Is this a good idea?

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Comment pages: 1 2

Don’t let the government that wastes everything they put their corrupt hands on touch any more of our hard-earned money! How can this not be causing a severe backlash here on the INTERNET?? Hello?

Christian Conservative on December 1, 2011 at 2:37 PM

Amazon does not collect sales tax in North Carolina. The state lost a very public battle in their attempt.

Valiant on December 1, 2011 at 2:41 PM

Don’t let the government that wastes everything they put their corrupt hands on touch any more of our hard-earned money! How can this not be causing a severe backlash here on the INTERNET?? Hello?

Christian Conservative on December 1, 2011 at 2:37 PM

What do you think a “backlash” on the internet would look like? “Occupy the web” would mean having to take over hundreds of service providers and backbone facilities. This battle should be fought at the state level — and will be provided the federales don’t get their filthy mitts on it.

gryphon202 on December 1, 2011 at 2:49 PM

As a small business, you will not only get to collect taxes for states which do nothing for you, you will also get to enjoy the benefit (/sarc) of being audited by these states. And forced to pay for taxes which you did not collect, that the state feels you should have, plus penalties and interest. So you have all risk for even honest mistakes, but no benefit. The state does not reimburse you for your expense in collecting their taxes, only penalizes you if you do not do it perfectly.

There are over 500 different sales tax districts in the US. The merchant will be required to be 100% accurate in enforcing each and every districts laws and rates.

MTinMN on December 1, 2011 at 3:10 PM

So you have all risk for even honest mistakes, but no benefit.

MTinMN on December 1, 2011 at 3:10 PM

You just summed up our federal government perfectly.

gryphon202 on December 1, 2011 at 3:13 PM

I have an idea. How about instead of paying sales tax where the person buying the item lives, the sales tax is paid where the sale is made, that is, where the seller is. This way, regardless of whether you sell to a person walking into your store, or someone purchasing online from any state, there is one sales tax rate the one where the store is located.

As a side bonus, there might just be a lot of people moving to states with low sales taxes (that don’t make up for it with huge income taxes), which should result in tax competition.

Fizzmaister on December 1, 2011 at 3:24 PM

“I am writing to congratulate you on the introduction of the Marketplace Fairness Act and offer my support for its timely passage,” Barbour wrote in a letter to Sens. Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.), two co-sponsors of the bill. Sen. Dick Durbin (D-Ill.) is also a leading supporter…

Once again Republicans wanting to be the tax collectors for the Democrats… Will it never end?

RJL on December 1, 2011 at 3:48 PM

A sales tax used to be levied only against new items, used items had a pass. However, if one buys a used car in California from an individual, California collects a sales tax from that transaction. I’m surprised that they don’t have a garage sale cop that drives around to different garage sales and demands the state’s cut.

Who would be responsible for collecting and distributing sales taxes from E-bay. Would E-bay be responsible for collecting and distributing sales taxes from all the used items sold between individuals?

Considering who will write the law, one can be assured that the law will be /slightly/ flawed.

PrettyD_Vicious on December 1, 2011 at 3:59 PM

I have an idea. How about instead of paying sales tax where the person buying the item lives, the sales tax is paid where the sale is made, that is, where the seller is. This way, regardless of whether you sell to a person walking into your store, or someone purchasing online from any state, there is one sales tax rate the one where the store is located.

As a side bonus, there might just be a lot of people moving to states with low sales taxes (that don’t make up for it with huge income taxes), which should result in tax competition.

Fizzmaister on December 1, 2011 at 3:24 PM

The state of Oregon loves your suggestion. All the online stores will move there to conduct their business.

PrettyD_Vicious on December 1, 2011 at 4:03 PM

Where is the seller? Is it where the servers are, or where the warehouse is? On some of my amazon orders, within a single order, the products come from multiple warehouses. Which site gets the tax? Now on ebay, would ebay collect tax on the ending value of auctions, or would the individual sellers be responsible for that? In either case fees go up, and in the latter large quantities of small sellers exit the market. Will paypal charge sales tax, and if so where?

But the problems brought out by this are due to states wanting to get more of their greedy hands on everything. They want the $ and don’t care how much they have to destroy through regulation alone to do it. I say NO. Live within the means they already have, which if they were doing so they would not need this extra revenue, and which they will not do with this extra revenue, so they will destroy and overspend again for no benefit. I say it stops here!

AnotherOpinion on December 1, 2011 at 4:07 PM

Why is it every time the government wants to make things more “fair” it involves a tax hike? Why can’t they lower sales taxes to make them more competitive and fair? Why should e-business pay for local expenses like police protection, parking lot maintenance, road maintenance, street lights etc? Which is what “LOCAL” sales taxes are for? They don’t use those things.

Dollayo on December 1, 2011 at 4:47 PM

Advantage: Big business
Disadvantage: Small business

Again.

The bureaucrats would find the world a lot easier to “run” if they only had to regulate GM, Wal Mart, and McDonalds instead of several, hundreds, or thousands of different competitors.

I get the fairness cry, but it’s not fair *either way*, which means something is broken, in this case the complexity of taxation.

Merovign on December 1, 2011 at 4:53 PM

Once again Republicans wanting to be the tax collectors for the Democrats… Will it never end?

RJL on December 1, 2011 at 3:48 PM

I could agree to the internet sales tax as a concession to the Democrats for meaningfully cutting spending. But it is utterly insane for any Republican–even Snowe and Collins–to sign on to a tax increase without a corresponding cut.

thuja on December 1, 2011 at 7:18 PM

Very bad idea. I already have to pay shipping charges on my Amazon orders. Taxing my purchases would make it more costly to purchase things on line, thus “Unleveling” the playing field. Republicans should be ashamed to put their names on this legislation.

paraff on December 1, 2011 at 1:26 PM

Judging from these posts, I don’t think many people have an appreciation for the current inflation in shipping charges. Online retailers are already lying about it; chiseling some of the shipping and pasting it into the cost so customers don’t think they are being cheated. Everyone that buys anything from me sees cost and shipping; when they have to add cost and shipping and sales tax, there’s no reason to buy from me anymore. The increasing shipping charges together with a new tax will wipe out a lot of little shops. If I were Amazon, I suppose I’d support it too. It is going to be a southpaw to ebay, though.

Axe on December 1, 2011 at 11:39 PM

paraff on December 1, 2011 at 1:26 PM

Not your post paraff. I was agreeing with you. Judging from many of these posts in general, yadda yadda.

Axe on December 2, 2011 at 1:25 AM

Consider the unintended consequences.

A fair amount of what gets bought from E-Bay in this household are small gadgets from Hong Kong. What is this going to do to international relations when such sales are taxed by individual states?

Another question that comes to mind, considering the tax rates involved here in Californicate, is what will be the effect of this on black markets. In tough times black markets spring up be they old fashioned black markets or simply barter systems. I already see a lot being done via barter. (Heck I just indulged in a little international barter in Florida a couple weeks ago. A fellow was having Geek Squad simple sort or problems at an Air Museum we were visiting. I sat down with his laptop and fixed it in a couple minutes. He insisted on paying me $20 for it and arranged a discounted helicopter ride around the area. Of course, I had to take the money lest I lose my creds as a mercenary. {^_-})

{^_^}

herself on December 2, 2011 at 4:22 AM

Fifteen years ago, when e-commerce was still a nascent industry, it made sense to exempt startups like Amazon.com from collecting and remitting sales taxes in states where they had no facilities,” Barbour wrote. “But today, e-commerce has grown, and there is simply no longer a compelling reason for government to continue giving online retailers special treatment over small businesses.”

If it made sense then, it makes sense now — at least with respect to other startups where they have “no facilities”. Amazon is in favor of collecting sales tax because it puts up a barrier against competitors gaining market share in exactly the same way Amazon gained market share.

unclesmrgol on January 21, 2012 at 12:02 PM

Comment pages: 1 2