Imagine waking up and discovering that you are now the tax collector for the government, because the government does not want to do it themselves. You have now become the living dead, you are obligated to calculate and collect and pay taxes in 46 states, six territories, and more than 500 Native American Tribal Nations. And you are personally liable for any errors. So the tax authorities can seize your personal assets, your house, and your bank accounts. And you have no one to represent you if there are any disputes. And that just to try to comply with the law you will need to pay tens of thousands of dollars per year to another company to help you with the calculating and filing of the taxes.
I think that anyone would agree that qualifies as a nightmare.
Unfortunately, this is exactly what the pending US House of Representatives legislation so inappropriately named the Marketplace Fairness Act (MFA) governing sales tax on internet retail sales would do to many small businesses. The legislation is being supported in a big way by cash hungry state legislatures, “Big Retail” led by Walmart and Amazon, and sales tax software providers.
On the surface, it sounds very reasonable to require everyone to pay sales tax and operate under the same rules – a “level playing field”. But do not be fooled. This legislation, which has been supported by tens of millions of dollars paid to lobbyists
(and contributed to elected officials) by the Big Retailers, is really an attempt by the online Goliaths to squash the Davids of the retail world by imposing crippling costs and burdens upon the small retailers.
If the law proposed a uniform national sales tax that everyone would collect and owe equally, and pay to one entity, the law would meet with little objection from small businesspeople (like me). I have no problem collecting and paying sales tax. I have always done so in the state where my business is located, which has always been the law of the land in the US. But the proposed legislation, which was pushed through the US Senate without any proper debate or discussion, would require all online retailers to calculate, collect, and file sales tax for 46 states. And the lobbyists in favor of the law say that is not a problem because all the states are going to supply “free software” that the small businesses can just plug into their business ecommerce management systems that will take care of everything. Can anyone who has ever even used a computer believe that would have any chance of working? Few if any small businesses would have the technical ability to integrate the software into their order management systems. In most cases, the “free software” would simply be incompatible with their order management systems.
But according to the Big Retail lobbyists, that should not be a problem either, because there have recently arisen a number of venture funded service providers (who stand to make millions) who will be happy to provide that tax calculation and collection service to small businesses like mine and only charge me tens of thousands of dollars per year. In addition to thousands of dollars more they will charge in setup fees. And plus any integration costs that might be necessary (which there certainly would be). And at present the software does not even work with many popular order management systems or common accounting programs. (so what would a business do…. These software firms, who stand to make millions if the law passes, have been spreading misinformation and outright lies about how easy their software is to install and use. Who should be believed, the ones who stand to profit immensely if the law passes, or those who will be hurt by it?
So the cost of compliance for many small internet retailers, if even technologically feasible (which is dubious), would be huge. And to add insult to injury, for many small businesses the annual cost to calculate and file the taxes would likely be even more than the amount of taxes that they would be collecting each year. That is incredibly inefficient from a public policy and tax collection standpoint. Because of these costs and burdens, the American Association of Attorney Certified Public Accountants (who would stand to benefit greatly from increased business opportunities if the law passed), have come out strongly against the MFA. In their view, the law would place crippling burdens on thousands of small businesses and would force many out of business.
And even with the “help” from the expensive tax calculation and filing service providers the law would expose small retailers to audits in 46 states, six territories, and more than 500 Native American Tribal Nations. Anyone who has ever been through an audit can tell you even if you keep good books and are totally honest, a single audit can take days if not weeks of your time. How could anyone be expected to manage or grow a business under that type of burden?
One of the most frustrating aspects of this proposed legislation is that a good argument can be made that the law is simply not needed – the truth is that sales taxes are already being collected on the vast majority of internet retail sales. At the present time, internet retail sales account for between 6 and 8 percent of all retail sales. That is all. And according to James Gilmore III, the former Chairman of the Congressional Advisory Commission on Electronic Commerce, more than 80 percent of online sales are made by big box retailers who have physical presence in most if not all states. So they are already collecting sales tax now on those sales. The online retail world looks more and more like the offline retail world, dominated by the Big Retailers. So what is left? The remaining less than 20 percent of online sales – maybe 1 percent or less of total retail sales! That’s what this legislation is all about – the last 1%, which is mostly sold by small businesses. And those sales are already taxed through state use taxes which are supposed to be paid by the consumers, but the states usually choose not to collect them or pursue the consumers because it is politically unpopular. That’s now what they want the small businesses to do for them!
Big Retail says the law is necessary to “level the playing field” and has worked hard to convince small brick and mortar businesses that the Big Box down the street is not who has been undercutting them on price and putting them out of business for years, but rather small online retailers are. Online small businesses are not at odds with small brick and mortar stores. In fact, many of them are hybrid businesses that sell both online and in-store and started selling online to try to survive the assault from the Big Boxes. Selling online is how they survive!
Most small internet retailers would argue that the playing field is tilted against them now because internet retailers have to pay shipping for all of the orders that they sell, which in most cases is greater than sales tax would be on a purchase. They already have to absorb that cost. So internet sellers already have a price disadvantage as compared to brick and mortar stores. In addition, Big Retailers enjoy huge tax breaks from local governments and volume based reductions in shipping costs from UPS, Fedex, USPS, etc. that give them a big cost advantage over small retailers.
The law as it is currently proposed exempts businesses with less than $1 million in annual online retail sales – not profits, but total sales. That threshold is ridiculously low. The costs of complying with the law could wipe out most if not all profits for businesses near the threshold. As anyone who knows anything about business can tell you, $1 million in total sales is a very small business, and that threshold would still subject most mom & pop sized online businesses to the costly and burdensome requirements. It would only exclude the tiniest of businesses and the casual ebay and Craigslist sellers. The proponents of the law like to say that the $1 million threshold exempts 99% of all online businesses. Poppycock. They are including in that figure any individual who has sold anything on sites like eBay and Etsy and Craigslist. Those are not businesses, those are casual individual sellers (think yourself, your mother, your friends, your grandma, etc), NOT businesses who are selling things online for their sole means of support and who hire and employ people, who rent space, who advertise, who have business licenses, who pay local business income, sales, unemployment, and personal property taxes.
The law would deter people from starting businesses, and it would be a growth killer. No business would want to grow past the $1 million sales threshold and subject themselves to the collection, reporting, and audit costs. I have spoken to many business owners who are seriously considering laying people off and shrinking their businesses to get below the threshold if the law passes because they are so afraid of the compliance costs and risks. That would be tragic for those business owners, their employees, their local communities, and the United States economy. It is just what Big Retail wants.
The MFA is bad legislation. It is not fair, it is not needed, it is bad for competition, for jobs and economic growth in our communities, and should not be allowed to become law. Note: This article was not written by me. It was submitted by a third party as an anonymous post.