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Doug Nebeker ("Doug")
The Senate is expected to vote this week on the Marketplace Fairness Act which requires payment of state sales tax. It empowers states to compel retailers outside their borders to collect sales tax for online purchases.
What would the impact be on your business if the Marketplace Fairness Act becomes law?
This bill doesn't stand a chance of making it through the House, so it's a moot point.
From the link:
"However, there is currently an exemption for retailers that make less than $1 million in out-of-state revenue—but Donahoe [the bill author] pushed for this limit to be raised to $10 million, or for the exemption to cover companies with less than 50 employees."
I doubt it would impact many mISV's, but in general I think the problem with internet sales tax in the US (vs VAT in the EU, for example) is that there are too many tax boundaries. There can be state and municipal taxes (maybe county as well). tracking and collecting will be a mess.
E-Bay has a huge conflict of interest in this. PayPal doesn't remit sales tax on behalf of retailers who use it for a payment processor, where other payment processors like SWREG and Fastspring do. With PayPal (or if you use your own credit card merchant accounts) the retailer has to remit taxes to all the different authorities and unless you are a big online retailer like Amazon, the authorities aren't going to pursue you in Pensacola to get their pound of flesh.
I didn't get this email from E-Bay, but I can see why they sent one. Their business depends on being a clearinghouse for online retailers who get an opportunity to avoid remitting sales taxes out of state(and collecting those taxes can be another revenue stream). Auctions draw in traffic, but I'm pretty sure the majority of transactions are Buy Now pricing. This law could push those retailers onto their own websites, relying on search engines to get traffic. Which means E-Bay makes much less money.
Downloaded software doesn't seem suited for the E-Bay marketplace, so this law isn't going to impact small software vendors. Either you are using a payment processor that remits sales tax for you, or you roll your own payment processor and use your own merchant accounts to avoid paying that tax. Personally, I hate it when someone else gets away with something and I don't, but this law isn't going to change that.
"This bill doesn't stand a chance of making it through the House"
Unless ebay has more lobbyists than Wal-Mart, Amazon, etc. combined, this bill is a slam dunk. http://www.marketplacefairness.org/support/ It was originally tabled by a Democrat and a Republican senator in Nov. 2011, now that U.S. politicians have a year off before they start campaigning again, it stands to reason that it will come to pass in the very near future.
It adversely affects one company in California (not exactly a swing state) and stands to benefit every brick and mortar based retailer who ever remitted local sales taxes who sell goods that have ever been offered for sale on ebay. Not to mention the 29 state governors who have signed on. Since tax collectors only hunt down offenders where the reward is greater than the cost, this is revenue positive and will help provide job security for thousands of Revenue Department employees all over the lower 48.
Why you say eBay has a conflict of interest, as opposed to just an interest? All the businesses that have brick and mortar stores have the same type of interest - it's good for their businesses. For eBay, it's reduces overhead. For brick and mortar stores, it adds overhead for their competitors.
Despite the bipartisan support by governors and the limited bipartisan support in the Senate, I still don't think it will pass the House. The House tends to be a lot more conservative on tax issues than the Senate, Govtrack gives it an 28% chance of making it out of committee and an 11% chance of being enacted:
"However, there is currently an exemption for retailers that make less than $1 million in out-of-state revenue..."
Worth noting is that this is a common tactic with these bills. Place an exception to stop the majority of those affected from complaining, then a few years later there is a new bill to "close the loophole", as if it is a "loophole" that was somehow forgotten.
Well, this could be an opportunity for someone to make an API of some sort and charge merchants for calculating sales tax based on where it is getting sold to, and what is getting sold. You'll need an accountant to help.
One previous thread:
I found two so far, one appears very thorough and sophisticated.
My original post asked for potential impact if the law passes, not for opinons about its merit or if it is likely to pass. I see it costing me a lot of time, or pay a service like the two I have found. I would expect the ecommerce providers like FastSpring to offer the servce for additonal fees.
"Why you say eBay has a conflict of interest"
Because as far as I can tell, this bill will only affect ebay and its subsidiary PayPal. Other payment processors are already remitting state sales tax and major direct online retailers like Amazon are doing the same because they have business "nexuses" that require them to remit those taxes. Online retailers who are too small to get the attention of out of state tax collectors just have to quit using ebay as a storefront.
From the standpoint of an economist, the best solution for the U.S. is to adopt universal VAT, with each state able to tack on its own rate, but the federal government doing the collection. Easier bookkeeping, gets much of the hidden economy into the open and it doesn't skew consumer behaviour. It also puts a damper on smoke and mirror shows by politicians. But VAT is like the metric system, too foreign for Americans.
"I would expect resellers to absorb any extra cost. They already have to handle sales taxes for regions like EU. "
I would not assume that -it could cost them a bunch.
There are a large number of tax authorities in the USA with many counties having different sales tax rates and special tax districts on top of that. They would have to database all those rates and keep on top of changes.
Are they going to remit the tax payments?
What about the 20 or so states that have archival requirements for sales tax data?
The EU has a number of such zones as well. As long as there is some sort of sales tax database that the reseller can buy, I would expect that their existing software should handle the collection and remittance of such payments.
Extra requirements like archival is probably automatically done by them anyway.
This is all conjecture so resellers should feel free to chime in!
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