On March 22, the United States Senate voted overwhelmingly to move forward with the consideration of the 2013 Marketplace Fairness Act. The proposed law would require Internet retailers to collect sales tax from out-of-state customers, as well as grant states the ability to then collect sales tax from retailers not based within their borders.
Although the bill itself hasn't been passed yet, the 75-24 vote suggested that both Democrats and Republicans are ready to ratify the legislation and pass it to the House of Representatives for further consideration.
Suggestions aside, however, the Marketplace Fairness Act still faces considerable obstacles before it becomes law. Senators voted on a nonbinding, generic statement indicating they support acting in some way concerning an Internet sales tax, but the proposal as it's currently written does not have 75 votes.
According to eBay's Senior Director of Global Public Policy Brian Bieron, the most recent vote was intended by supporters "to put pressure on the committee process," as well as the House, in an effort to breeze past the legislative process and avoid debating the bill's particulars.
Chief among eBay's objections is the Marketplace Fairness Act's small business exemption. Internet retailers who make less than $1 million in gross sales would be excused from collecting sales tax, but while businesses like Amazon and Walmart support the proposed level, Bieron argues that it is simply too low.
"The idea that a million dollars in sales is the point where a retailer goes from being a small business to being put in essentially the same tax bracket as the largest retailers in America borders on crazy," he told iTech Post in a telephone interview. "The number is very small in a retail world context and is not close to protecting many small business retailers."
Proponents of the bill are quick to claim that the exemption is placed at a meaningful level, and that it would level the playing field between brick-and-mortar shops and Internet businesses, but it's hard to square the argument with a look at what the Small Business Administration defines as a small business. Under the SBA's size standards, most operations in the retail and service industries making less than $7 million qualify as small businesses. Some sectors even have thresholds of nearly $30 million.
Needless to say, the MFA's current small business exemption would leave many companies unprotected, and they want the implications to be obvious.
"It would be a nightmare," Kathy Terrill, the owner of NYC Fitness, Family and Finds, said to iTech Post. Her online business sells fitness DVDs, clothing, and a variety of other items. Terrill said that it takes three to four hours of work every quarter to get her taxes in order for New York. Complying with regulations for every state would require "potentially 150 hours of work quarterly."
"If you're at a million-dollar threshold, you've got employees," Terrill continued. "It gets into that area where if you grow you get penalized, because what happens is they put you up against the Macy's, the Williams-Sonomas, the big Internet retailers that, you know ... I just don't have that kind of setup."
Terrill made it clear that collecting sales tax in all states would impose severe restrictions, to the point that she would be forced to restructure her entire operation.
"I'd have to dramatically change my inventory, which would reduce revenue," she said. "I sell such a variety of items; I can't afford it. We're trying to do this business so that we can pay our bills, and they're adding to my workload."
For a big corporation like Amazon, already in the midst of a nationwide expansion, that extra workload will be inescapable, and not just because of its high sales volume. As the company builds more warehouses in more states, it creates a physical presence in each new territory. Suddenly, it becomes taxable.
If Amazon's trajectory is to eventually be responsible for collecting sales tax from every state, then it only stands to gain by supporting legislation requiring the same of virtually all other Internet businesses, physical presence or not.
Bieron wouldn't name any names, but he did say that raising the size standard for the small business exemption has been a tricky maze to navigate. Business lobbyists want to capture as many competitors as possible, while states themselves want to collect as many taxes as they can.
As for eBay, the company's defense of small business isn't entirely altruistic. Its primary source of revenue comes from charging listing fees and taking a percentage of every sale made through its Web site. Bieron wouldn't comment on how many of his own sellers would be affected by the MFA, but it seems clear-cut that the higher the exemption is, the more easily many of the site's businesses can stay operational, and the better off eBay itself will be.
In the face of all this lobbying, and in spite of the overwhelming vote last month, early signs indicate that Senators are open to raising the exemption threshold in order to protect a larger pool of candidates.
"We do feel it'll be possible," Bieron said. "It's unusual for Congress to do something bad for small businesses using technology." Small business is not the same as big business. At the end of the day, "we think they will try to find a balanced solution."
