In an effort to sway public opinion against pending legislation to pass an online sales tax, eBay president John Donahoe launched an all-out email campaign Sunday morning, leveraging the auction site’s nearly 40 million small online merchants to contact Congress on the issue of online sales tax.
“This legislation treats you and big multi-billion dollar online retailers – such as Amazon – exactly the same,” Donahoe argues. “Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer.” The full text of Donahoe’s email is available at Mashable.
The email campaign push surrounds the small business exemption written in the bill that allows online retailers with $1 million or less to be exempt from tax collection.
The so-called Marketplace Fairness Act, introduced in the Senate by Wyoming Republican John Enzi and in the House by Arkansas Republican Steve Womack, aims to”restore States’ sovereign rights to enforce State and local sales and use tax laws,” according to the bill’s language. The bill would allow state tax authorities to place sales taxes on online transactions in cases where the retailer does not maintain a physical presence in the state.
“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 from the burden of collecting sales taxes nationwide,” Donahoe wrote. “To put that in perspective, Amazon does more than $10 million of sales every 90 minutes. So we believe this is a reasonable exemption to protect businesses like yours from unreasonable tax burdens.”
“It’s the biggest grass-roots effort by eBay ever,” Brian Bieron, senior director of global public policy at eBay, told Reuters. “It’s coming to a head in Congress and now’s the time to give our users the opportunity to share their thoughts.”
Established and traditional retailers immediately pushed back on this campaign by sending a letter of their own to the Senate urging action on the present bill, which is expected to be voted on some time this week.
“This legislation would level the playing field for the industry with the largest private workforce in America,” wrote the Marketplace Fairness Coalition, which is made up of Best Buy, Amazon, Retail Industry Leaders Association, National Retail Federation, and International Council of Shopping Centers as well as hundreds of retailers.
“eBay’s opposition to the Marketplace Fairness Act is a transparent attempt to maintain an unlevel playing field and benefit a very small number of their largest sellers,” the letter says.
But eBay is not alone in its fight against the tax bill. In a statement Friday, the We R Here coalition, made up of small online retailers, points out the Market Place Fairness Act’s threshold for small business is much lower than other official standards. While the Internal Revenue Service considers a small business to be one with $20 million in annual revenue or less and the Small Business Administration has a cutoff of $30 million, the bill’s threshold is only $1 million.
“Essentially, any company with more than a few employees would be hit by this tax, falling short in protecting most small business entrepreneurs from having to comply with costly and complicated remittance requirements,” the group writes.
The argument over online sales taxation goes back 20 years, to the case of Quill vs. North Dakota. In that case, the Supreme Court ruled that retailers must have a physical presence in a state for sales tax to be collected. As e-commerce has grown in the 21st century, brick-and-mortar stores argue that they work with a competitive disadvantage as consumers will use their stores for “show rooming” — trying on products and receiving customer assistance — and then go to purchase the good online and pay no sales tax.
Although e-commerce enjoys rapid growth, it still accounts for a relatively small amount of U.S. retail sales. According to Census Bureau data [pdf] for the fourth quarter of 2012, e-commerce accounts for just shade above 5 percent of total retail sales.
In a non-binding vote last month, the senate overwhelmingly voted, 75-24, in support for the Marketplace Fairness Act. Support came from conservative senators like Jeff Sessions, Tom Coburn, John Thune and Ron Johnson. Many other conservative groups have recently piled on to support the bill, including the American Conservative Union and Let Freedom Ring.
Former Reagan economic advisor Art Laffer recently suggested online sales tax collection could empower states to lower other taxes and achieve pro-growth tax policy.
“The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems,” he wrote in the Wall Street Journal. “Properly addressing the problem of e-fairness on the state level is a small, but important, step toward achieving this goal.”
Conservative support for enhancing states’ tax power is far from unanimous, however. The Heritage Foundation’s Heritage Action scorecard on Friday issued a clear “No” on the bill, while RedState’s Daniel Horowitz wrote recently, “Such a plan would completely change the sales tax from a tax owed by the buyer to one levied directly on the seller. Besides, why should we open up any new stream of revenue when we should be lowering the tax burden on everyone?”
In a phone call with The Daily Caller, Americans for Tax Reform founder Grover Norquist noted that states have shown no inclination to lower other tax burdens in return for an online sales tax, as Laffer implies. Norquist also pointed out that the universe of possible online revenue comes to only $8 billion nationwide, and he said that the tax bill stems from other motives.
“This is not about $8 billion in revenue,” Norquist told TheDC. “It’s about eliminating tax competition among states. The loser states want to be able to extend their tax rates into other states that have done a better job on taxation.”
The Senate is expected to vote on the issue this week, as soon as Monday evening, though the way forward for the bill in the House, where it has failed to gain similar momentum, remains unclear.
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