Small Business News

Small Businesses And The Online Sales Tax Debate

The Marketplace Fairness Act has been regularly described as a bill that would help small local businesses compete against the large online businesses that dominate the playing field due to them not having to collect sales tax. This description is a little unfair, however, as it often ignores the growing number of small businesses that are courting consumers online instead of through a physical storefront.

The Seattle Times recently reported on the interesting case of a small online retailer called Puget Sound Instrument. The owner, Peter Ollodart, became increasingly concerned by the progress that the Marketplace Fairness Act was making through Congress. The bill, which would require all online retailers, including his, to collect sales tax on purchases, would cut into what little profit his small business makes.

To put this into perspective, Ollodart says that his 2012 tax return shows that he made $350 in net profit. This was after his company sold $3.5 million worth of electronics to mostly out of state customers. He suspects that having to file state sales tax for 44 states would put him out of business.

With his business’ livelihood on the line, Ollodart flew out to Washington D.C. to ask that lawmakers oppose the bill. Unfortunately, only his local Congressman, Rep. Dave Reichert, met with him. The lawmaker wouldn’t say whether or not he would vote yes on the bill, but his spokeswoman later told the paper that he didn’t “want to place any undue burdens on small businesses.”

Despite Ollodart’s and many other small online businesses’ efforts, the Senate voted in favor of the Marketplace Fairness Act back in May. In fact, the bill was passed by a wide margin with 69 senators voting in favor of it while only 27 voted against it. Of course, the bill’s success in the Senate doesn’t necessarily mean that it will do well in the House. In fact, House Speaker John Boehner has said that he probably wouldn’t vote in favor of it.

Of course, minds can change when money is involved. That’s where the lobbying comes in, and it’s where big business has a big advantage. Amazon has been spending millions of dollars over the past few years to ensure that Congress passes the Marketplace Fairness Act. Why would an online retailer support the legislation? For starters, Amazon already pays sales tax in every state where it has a physical presence, and it’s building more fulfillment centers in new states all the time. As you can see, Amazon has little to lose with the passage of the bill.

Aside from Amazon, big retailers like Best Buy and Sears are pushing for its passage via the National Retail Federation. The lobbying group had this to say when the bill was passed by the Senate:

“This bill and its companion in the House will level the playing field for all retailers – both online and off – while safeguarding states’ rights. And the bill does it all without raising taxes, new government mandates or adding to the deficit. NRF and our broad cross-section of members will work closely with our bipartisan sponsors in the House, Reps. Womack and Speier, and Chairman Goodlatte to ensure that efairness is debated honestly and on its merits. When brought to a vote, we believe the House will pass the bill and it will be signed into law.”

Both big business and small business can agree that the debate over the Marketplace Fairness Act is about fairness. It’s what that fairness entails that gives rise to debate though. Big business claims that its losing customers to online businesses due to their ability to offer lower prices on account of not having to collect sales tax. Small online businesses, however, claim that having to collect sales tax would only make their lives more complicated, and cost them thousands of dollars more a year in hiring accountants to take care of said taxes.

This is where the opposite comes in. A number of small online retailers, Americans for Tax Reform and eBay have all been pushing against the legislation. eBay in particular feels that the Marketplace Fairness Act would negatively affect small businesses. That’s why it’s pushing for an exemption that would make it so that any business that brings in less than $10 million a year annually would not have to pay out-of-state sales tax. The current exemption is $1 million in annual sales so it’s easy to see why small online businesses like Puget Sound Instrument have much to fear from it.

That’s why Ollodart and other small online business owners are going to continue fighting against the bill. Unfortunately, there’s not a lot of hope among them as they are consistently outspent by the big box retailers that continue to claim that they’re doing this with the small mom and pop shops in mind. Those mom and pop shops and increasingly turning to the Internet to do business, and the passage of this bill would severely limit their ability to do said business.

It’s the ultimate irony – big business rushing to save small business with a bill that may end up only hurting both in the long run.

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