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Not So Fast, Congress: Online Retailers Push for Changes to Marketplace Fairness Act

From eBay to Etsy, online retailers want Congress to exempt more small businesses under the Marketplace Fairness Act.
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If you can't beat 'em--ask for an exception.

Online retailers, once opposed to out-of-state tax collection full stop, are now pushing for a little more leniency in a new interstate tax collection bill that is rapidly working its way through the U.S. senate this week.

"We at Etsy support the intent of the legislation," wrote Althea Erickson, director of public policy at the online craft and vintage retail marketplace, in a company blog post on Monday. Erickson went on to encourage Etsy sellers to lobby their senators to raise the mandated revenue threshold (currently $1 million in annual sales) so that more of them would be exempt. "We believe in pushing the exception as high as possible," she wrote.

The bill, called the Marketplace Fairness Act of 2013, would require online retailers to collect state and local sales taxes from all U.S. customers. Currently, retail sites only collect sales taxes from customers in states where their companies operate (other customers are expected to pay the sales taxes on their own, but they rarely do).

Previous attempts to introduce similar legislation, including a Marketplace Fairness Act proposed in 2011, failed. Now, with the backing of online retail giant Amazon.com (which, by the way, now sells tools that help retailers manage interstate sales tax collection) this year's bill seems primed to go to a successful vote as early as this week.

Start-ups should prepare, says William F. Fox, professor of economics at University of Tennessee, Knoxville. "If [online retailers] are national in the scope of the markets they are entering, then they are national in the scope of the taxes they should be collecting," Fox says. Eventually consumers "focus on what they want to buy…not on whether they have to pay tax."

The proposed legislation is an inevitable leveling of the playing field between online sellers and brick-and-mortar retailers, says Amanda Nicholson, professor of retail practice at the Whitman School of Management at Syracuse University. "The current situation is inherently unfair," Nicholson wrote in an email. "It allows online-only retailers to frequently avoid charging and collecting sales taxes…while the brick-and-mortar stores (large or small) are compelled to do so."

Some online retailers are still pushing back, however.

On April 21, eBay CEO John Donahoe wrote a letter to the company's customers urging them to push for higher exemption limits. "The solution is simple: if Congress passes online sales tax legislation, we believe small businesses with less than 50 employees or less than $10 million in annual out-of-state sales should be exempt." The company did not say how many of its sellers would be affected.

Even as the bill heads toward a vote as early as this week, retailers well within the exemption limit still grumble the new tax requirements will eventually put a damper on their business.

"Customers don't like the surprise of being charged for taxes at the checkout," wrote Andres Niño, co-founder of startup footwear site Beckett Simonon, in an email. He says the Beckett Simonon, which launched in late 2012, already sees diminished sales in the one state where it does collect tax—Florida, where it is incorporated. The company, which as of the start of April had $160,000 in revenue, is still a long way from needing to collect taxes as required by the bill.

-- With reporting by Julie Strickland and Jana Kasperkevic

Last updated: Apr 23, 2013

BURT HELM | Staff Writer | Senior Writer

Burt Helm is a senior writer for Inc. Magazine.




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