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Alexandra Biesada

An online sales tax appears to be in store

by Alexandra Biesada | Dun & Bradstreet Editor

April 29, 2013 | 3 Comments »

sales taxBIZMOLOGY — Once a ferocious opponent of collecting sales tax on Internet purchases, Amazon.com has reversed course and is supporting legislation requiring online merchants to do just that.

With Amazon’s vocal support, The Marketplace Fairness Act of 2013 is winding its way through Congress. Indeed, last Thursday the legislation passed a bipartisan Senate vote, 63 to 30. Final Senate passage is scheduled for May 6, and that tally is likely to be even more strongly in favor, reports the New York Times. Whether the tax-averse House will support the bill remains to be seen, but it’s considered likely to do so. The Obama administration supports the act as well.

Under The Marketplace Fairness Act (MFA), states can require online sellers with sales in excess of $1 million to collect and remit sales taxes, effectively ending the advantage Internet retailers have enjoyed relative to physical stores since the advent of e-commerce. Under the MFA, the states would be required to provide free software that would be embedded in retail websites to do the calculations.

Lawmakers cite fairness as the primary issue. Currently, with the exception of a few states that already collect Internet taxes, e-tailers are exempt from collecting sales taxes unless they have operations in the state. The preferential treatment became known as the Amazon loophole, until the online giant dropped its opposition to the tax.

Why did Amazon change its position after years of waging state-level battles to avoid collecting sales taxes? The next-big-thing in online retail appears to be same-day delivery service. To accomplish this, Amazon will need to have many warehouses close to its customers. Consequently, its tactic of threatening to close facilities (and thus eliminate jobs) in states that try to collect online taxes is becoming increasingly untenable. Canny Amazon may also see a business opportunity in Internet tax collection. As services become a bigger part of its business, Amazon could leverage its technology infrastructure to help other online merchants collect sales taxes, just as it hosts their other retail operations on its cloud. 

With an online sales tax appearing inevitable, it’s ironic, but not surprising, that the $61-billion-in-sales company that led the charge against Internet taxation may eventually profit by collecting it for others.

Excellent post. I wonder if the MFA will impact consumer spending patterns as much as e-commerce did? Will people start shopping locally again– even if that local is their Target or other large chain?

My feeling is that big online retailers, such as Amazon, already have such a price advantage vis a vis their physical competitors that even with sales tax and shipping, which you can avoid by joining Prime, it may still be cheaper to buy from them. Add in the convenience of shopping online and same-day delivery (a coming perk?) and people will still continue to shop online. Unfortunately, for small bookstores and other mom-and-pop shops driven out of business by Amazon and its ilk, the damage has already been done.

I read (or heard on NPR) a piece about Etsy sellers — they are such small operations that collecting sales tax and keeping up with the different state sales tax regulations will really put the squeeze on their business.

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