The United States Senate is considering granting states the authority to collect sales tax from online retailers, and Majority Leader Harry Reid is pushing for a vote as early as next week.
The Marketplace Fairness Act would require Internet retailers to collect sales tax from out-of-state buyers while exempting small businesses earning less than $1 million in sales. After simplifying their regulations, states would then be given the ability to collect taxes from online businesses.
Earlier this month, the Senate voted 75-24 in favor of considering an Internet sales tax, suggesting momentum exists for supporters of the proposal. As the Senate prepares to bring the bill to the floor, both critics and advocates are making sure their voices are heard.
"If the Congress is going to pass any law changing the current law regarding the authority of states to enforce their sales tax laws on business that are in other states, all small business retailers should be protected from any new tax burdens," Brian Bieron, eBay's senior director of global public policy, said to iTech Post in an interview. "Before the Congress moves anything, the small business exemption should be really set at a meaningful level."
Currently, states can only tax online businesses that have a physical presence within their borders. Bieron argues that part of the reason the exemption is too low is that granting every state the ability to collect taxes through its own regulations would result in a staggering amount of work and risk for small businesses.
"States under [this] bill would have very broad [tax] simplification hurdles," he added. "Simplication in that context would be in the eye of the beholder. All the states could claim they're simple, but if they're all different, that's not very simple."
Supporters of the bill, such as David Campbell, CEO and co-founder of the free sales tax management program TaxCloud, claim that services like the one he offers are more than capable of organizing any business' needs. The Marketplace Fairness Act mandates that tax management software be provided to any business in need, free of charge. State-by-state tax codes won't be a problem now that technology has matured.
"The number of jurisdictions doesn't matter," Campbell said to iTech Post during a phone interview. "Whether it's 9,600 or 96,000, the point is the software is more than capable of dealing with it, and you don't need some draconian, sweeping public policy that says there can only be a single rate for any state."
Campbell added that of the 2,500 merchants using TaxCloud, all but 50 or so are below the $1 million exemption threshold, and they've had no issues complying with the law.
"You can say that [it would be hard], just like you can say it would be impossible to figure out what an airplane rate would be to go from New York to any place in the country," he continued. "That sounds very difficult ... but that's not the way the travel industry works today. You go to a web site and, instantly, you can see different airlines, different price points across the country. This is no different than any large, automated system."
At least one online retailer, NYC Fitness, Family and Finds' Kathy Terrill, though, said being provided with free tax management software isn't the point.
"Free? Well, then who's paying for it?" she asked. "Is the federal government paying for it? Is the state government paying for it? Somebody's paying for it. So that means tax revenues are going to pay for free software for Internet sellers because they want the sales tax. It just sounds like they're promising [it] because they want compliance but that they don't really have it set up so they can deliver it."
Opponents of the bill also argue that Internet retailers already face obstacles local businesses don't, such as higher shipping costs and more difficulty handling returns and customer service.
"The idea that we're going to add sales taxes to the prices of all those products, when those products already face a lot of higher costs that the giant retailer doesn't face, that's just going to make the small business person's product a little less competitive," Bieron said.
To Campbell, however, every company faces the prospect of spending more than they earn on returns, and these issues would sound similar to any sort of retail business, online or off.
"Even a brick-and-mortar store has shipping; they've got to get something to the store before somebody can buy it," he said. "These are all characteristics of retail in general; they're not specific to online or off. Nobody forces people into the retail business. People choose this."
"That has nothing to do with public policy. Public policy is: you should treat similar situations, similar retailers, [and] similar consumers in the same way. That's not what's happening today."
