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Why Retailers Should Support The Marketplace Fairness Act

Marketplace Fairness Act

This post is the result of a retailer note on the Retail Doc Facebook page: “I’m having a difficult time understanding where your support for this is coming from and what that belief is rooted in. I respect you in so many ways…I just don’t get it.”

The Marketplace Fairness Act has just been approved by the U.S. Senate by a 69-27 vote and is on it’s way to the House of Representatives where the debate is bound to get ugly. In the circus atmosphere of a polarized Congress, where you are either a savior of the people or the devil himself, I expect a lot of sermons from both sides.

What it is

The Marketplace Fairness Act will authorize online retail sellers not qualifying for a small-seller exemption (under $1 million in online revenues) to collect and remit sales and use taxes for other states.

Why some oppose it

Some feel this undermines an individual state’s rights by making them collect taxes for another state. Some feel it is a new tax. Some feel it will be a nightmare to track the various state and local taxes and the Act will place an undue burden on small businesses. Some feel it undermines a state’s competitive advantage because they have lower or no sales taxes, which draws customers.

Why I support it

I wrote about the unfair tax advantages of online retailers nearly a decade ago with my first book, You Can Compete. I wrote about how a loophole in the tax laws gave online retailers a stacked advantage against brick and mortar retailers. I wrote how no tax coupled with lower prices would speed up the death of Main Street.

I believe I was right.

And even while Amazon now supports this legislation, let’s face it – they fought it for years because back then, Amazon was only about price. Now Amazon is all about convenience with their apps and Amazon Prime.

Read Amazon Showrooming: 13 Reasons Your Store Is Susceptible 

But I digress…

According to Shop.org, “the legislation would require states that want to participate to simplify their sales tax systems, making collection easier for retailers.”

If you live in a tax-free state like Delaware or Oregon, no sales tax would be collected from you.

This is not a new tax, individuals were always supposed to be paying their local taxes on their tax returns for these purchases- and only the Joe Friday’s of the world did.

If you buy something from a major chain that has a store in your state, you are already paying this tax.  And if you are an online retailer, you already have to collect sales tax from residents in your own state.

I remember when I sold luxury goods at South Coast Plaza; I had several customers ask me to ship their purchases to them so they could avoid paying the sales tax. Several states have “tax-free” shopping days. The draw of not paying the man the tax can be very powerful.

But that doesn’t make it right.

I support this legislation because it does level the playing field across the U.S. removing what has been an unfair advantage for over a decade.  Smaller retailers, you might want to checkout Stand With Main Street for their take as well on their blog Loophole.

The tide is turning, states are cash-strapped and vacant buildings in downtowns are visible reminders of customers going somewhere else to shop. With this legislation, at least the taxes that are needed to support your community will stay behind.

In sum

If it isn’t this time, tax-free online days are numbered. I hope whatever your position you still respect and will keep reading this blog…

What say you?  Please enter in comments below. (Please be respectful and play nice.)

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Posted by Bob Phibbs, the Retail Doctor on May 7, 2013.

This entry was posted in Retail Sales and tagged , , , , , , , , . Bookmark the permalink.

14 Responses to “Why Retailers Should Support The Marketplace Fairness Act”

  1. Sam Squailia says:

    Very nice take on both sides of the issue =)

  2. Robert Palleja says:

    As the owner of a Main Street store (literally) as well as an online store, I have to agree with the critics for a variety of reasons. Hopefully, final legislation (if any) through our process of representation in the house will result in something that does not become an undue burden on the operator.

    • I agree that the processing will need to be simple for all. Thanks for commenting!

    • Sam Squailia says:

      I am thankful for the $1M revenue exemption…whew! =)

    • Peter Murphy says:

      As a brick & mortar business, I know precisely where I am located and what 3 sales taxes apply and which ones do not.
      How many different sales taxes are there across the country? How easy is it to determine from a customer’s address which sales tax applies?
      I file my sales tax monthly. I am required to write 2 separate checks even though they are made out to the same department and mailed in the same envelope. A third sales tax is required to be paid online. All this is in just ONE state. Seems to me it will be a burden.
      Even though I am not an online retailer, I think on the whole this is bad for business.
      By the way, with my monthly sales tax I pay the Use Tax on items I purchase online for my business if the seller does not collect the sales tax.

      • Online retailers already use zip codes and that is how sales tax would be determined. The tools already exist and I imagine PayPal and the rest are readying even better ones to monitor and transmit to the appropriate agencies. Thanks for commenting.

        • I fully support collecting sales tax on all purchases. But I think this law is flawed. I would prefer to see EVERY retailer (including less than 1 million) pay sales tax TO THE STATE WHERE THE STORE IS.

          I think it’s only a matter of time until the bar is lowered to “all” retailers.

          It takes me 30 minutes to file my AZ sales tax. Plus I have to write a check, and mail an envelope. For 15 states each month, that’s an entire day devoted to sales tax.

          Not to mention that now I have to follow in my accounting procedures 15 checks for 30¢, 90¢, $3.17. All these little checks to keep track of. Some checks will cost more to mail than they’re worth.

          My state requires me to submit a tax form even if I owe no sales tax. Will I have to file 49 “0″ forms every month? I’m penalized in AZ $250 for failure to file. Boy I hope I don’t miss one! Are they all due on the same day of the month? And if I’m required to file “0″ returns, now I’m up to 25 hours per month of work.

          That’s three days each month just to pay sales tax!

          In order to collect sales tax, I pay $45 per year for my business license. Will I have to pay to have business licenses for 50 states every year? That’s $2,000 annually in new overhead fees.

          It’s a burden on the states too. They now have to create millions more tax licenses. Many of which will be for just a few purchases a year. And they have to process all those “0″ returns. If they’re imposing fees, they have to try to collect them all. All fifty states have to send notices of rate changes to every business in the entire country. Who’s paying the postage on all those notices!?

          The first time I make a sale to OK, do I have to wait for my tax license to be approved before I can ship the order to my customer?

          This is not scaleable. And this is precisely why they added the 1 million minimum.

          There is an easier way.

          Use the EXISTING system, and the EXISTING rules with one minor tweak:

          Just treat online sales the same way I treat an out of state resident standing in my store today. If an out of state customer buys something IN my store while visiting the Grand Canyon, they pay AZ sales tax. Where they live doesn’t matter. Even if they’re from a different country, if they’re in my store, they pay AZ (and City and Couonty btw) sales tax.

          I only have to know one sales tax rate and one set of codes (my state) and I only have to file one return (in my state) and the state processes roughly the same number of returns – not millions more – each month.

          Charge, collect, and file sales taxes in the state WHERE THE RETAILER IS. If it’s shipping from a distribution center, pay sales tax to that state.

          As for the current proposed law, I think not enough is being said of the citizen’s EXISTING obligation to pay the sales tax voluntarily. It’s not a “new” tax. [You] are already SUPPOSED to be paying it, and if you haven’t been, you’ve actually been breaking the law.

          Remember when the music industry started hauling napster users into court for million dollar fines? Maybe the states should start doing that.

  3. Tonya Spear says:

    My husband and I have been hoping they would tax the internet for years. As small business owners, we are hit by all sides. For some reason internet businesses think they are special and should be exempt from having to collect sales taxes. Commerce is commerce in my book. Whether it’s from a brick & mortar store or an e-commerce site, it should all be treated the same.

  4. James Tenser says:

    Very glad you posted this, Bob.

    Like you I am on record as favoring a level sales tax playing field as far back as 2000, and I published my opinion in VStoreNews and have reiterated it several times on RetailWire.com.

    Online sales tax is not new tax. It has merely been uncollected for 20 years, to the great detriment of state budgets and local merchants. It is high time the loophole is closed.

    I must say I differ with Daniel on a key issue. The tax laws of the ship-to address must apply, not the tax laws of the ship-from address. This is crucial, since otherwise all online retailers would legally locate their headquarters in the Cayman Islands or in non-sales tax states. The ship-to address is non-ambiguous, and fraud proof and the purchaser already is familiar with local sales tax rules. Even gifts shipped to a third address would present a simplified scenario.

    Furthermore, the cited complexities of online sales tax collection are absolutely a non-issue. Every major online shopping cart software vendor is ready to include sales tax calculation and collection automatically, based on the ship-to zip code. There numerous technology service vendors waiting in the wings who already maintain the necessary databases and payment platforms.

    In other words, we have to stop imagining that online merchants will need to invent methods of sales tax compliance. They already exist and they are completely transparent. Just pass the law and install the plug-in.

    The $1M exemption threshold is probably not necessary, but I can support the clause that relieves small businesses from the initial anxiety of this change.

    So what has Congress been waiting all this time for? A shift in the political winds, I suppose, like the ones that blow in from Bentonville and Seattle.

  5. You could probably skip this entire post and refer to my favorite line:

    “Screw the level playing field. Be an American and win the uphill battle.”

    I’ll forgive your complete acceptance of social norms. Forgive my inverse of that attitude. I’ll start with a relevant point, and end with a real thought.

    Here’s my relevant point:

    “In the 1920′s, Sears’ largest source of revenue was its catalogue. This changed as people moved into the cities; so why didn’t they keep shopping ‘online’? Going into the store was more valuable to their decision.

    Despite the catalogue being widely adopted by rural populations, once Sears had the profits to do so, it put retail stores near those rural folks anyhow. Today, you have Bonobos and some eyewear company going from completely online to opening their first BM stores. Why?

    Because online shopping is a catalogue, and stores are better at loyalty, upselling, new product exposure and customer experience (to name a few) than a catalogue will ever be.

    How about the kids on the playground stop bitching and play ball. Or hop scotch. Or whatever. Just because the school bully kicked you in the knee yesterday doesn’t mean everyone should be injured before recess. How about reinventing the game?

    Screw the level playing field. Be an American and win the uphill battle.”

    Here’s my real thought:

    “Level the playing field? How about doing so by removing taxes. All taxes have ever done is serve to move decision making power over the future of man from those who peacefully interact to those who steal and threaten for their authority.

    When you take something from someone without asking permission, it is called stealing. What justifies the stealing? We forgive children, after all. For adults, social contract and consent of the governed are the usual justifications. Divine Right just doesn’t have the same effect it did last millennium. No one ever proved it wrong (it’s ontologically invalid, can’t be proven either way); I’ll prove the other two wrong right here:

    The social contract is null and void by definition, as contracts signed under duress are invalid. There is no such thing as consensual governance. I govern my body without it’s consent. Gravity governs the motion of the planets. Where there is no choice, there can be no consent.

    Taxation is an act that is preempted by intellectual pacification, carries the dire threat of group-sanctioned harm, and ends by asking the victim to feel grateful. Shame on anyone who supports the tribal barbarism of taxation in any form, for any reason.”