Marketplace Fairness: Internet Tax, Amazon, and Mom-and-Pop

Posted by in Sales •


Come closer. I don’t want to speak too loudly.

I have a dirty little secret.

I buy online.

There, it’s out there. I feel free. And now that I’ve gone that far, I’ve bought a lot online. I like the ability to research my purchases, and I get a kick out of learning about options and related products. I also like saving money. In fact, I’m sure a lot of people feel the same way. 

But our online playtime is apparently over.

A bill known as the Marketplace Fairness Act, which concerns the implementation of an internet sales tax, is currently making its way through Congress. As is often the case, the issue is quite complex in nature, and there are two sides to the argument.

Some quick history: In 1998, a bill called The Internet Tax Freedom Act was passed to help internet-based business flourish. In essence, the act exempts etailers from collecting sales tax unless they’re selling to customers in a state in which they have a physical presence. (For example, Amazon has a location in Kansas, so it collects sales tax from Kansas residents.) In 2007, the current version of The Internet Tax Freedom Act was extended till 2014.

Now, back to today, and the two sides of the argument.

Those for the internet sales tax argue that etailers like Amazon are killing small businesses. Because they don’t have to operate under the same laws as brick-and-mortar shops, etailers can charge lower prices for goods. However, if etailers had to adhere to a state’s sales taxes, they’d be in the same boat as the state’s physical businesses. For example, if Amazon collected Iowa sales tax for its Iowa customers, it wouldn’t have an advantage over Iowa businesses.

Those against the internet sales tax argue that it will kill small businesses and help larger etailers like Amazon. Small businesses can’t maintain books like the Marketplace Fairness Act will command. Under the act, a small business etailer will have to file taxes earned in as many states as it has paying customers. For the small business owner, who wants to offer products to consumers in various states, this tax would mean more time spent filing taxes, more room for error, and more potential for audits. This camp believes the tax will give larger retailers a greater advantage of monopolizing etail.

Pop quiz! Which side is Amazon on?

According to Abe Garver, Amazon stands to gain $1 billion in windfall by 2025, simply by offering to manage the sales tax collection for all of the merchants in their system for a 2.9% fee. (40% of Amazon goods come from third-party sellers on the site.) For the record, Garver also estimates the internet tax will cost the average online shopper an additional $167 per year.

As I confessed, I buy online. For me, the internet is a resource to help me make more informed purchases. But I buy in person too. Many times, it makes sense to buy an item in a brick-and-mortar, mom-and-pop store—for instance, when shipping and handling is outrageous, if the item’s unavailable online, if I trust the store, or even on impulse. 

I don’t buy online because I hate small business. I like small and local businesses. I’ve even bought items online from them. So it frightens me that a tax derived in the name of small business could in fact hurt mom and pop.

I’ve been working to understand the internet sales tax, and I’m interested to know more about it from your perspective. As a retailer, salesperson, or online shopper, what does this mean to you? How would the internet sales tax affect your online sales? Is that different from your in-person sales?

Post your comments below.

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  • George Jacob
    George Jacob •
    Thanks for your comments everyone.

    I think it's probably a good measure to institute the tax if it benefits the small business as much as it does the large business. I'd hate to see every local shop close because they can't compete with Amazon's scale and prices. Small businesses are important for so many reasons, which I won't list here, and I hope that government takes those reasons into account when they decide on the bill.
  • Rati M
    Rati M •
    Do you mind if I quote a few of your articles as long as I provide credit and sources back to your site? My website is in the very same niche as yours and my visitors would really benefit from a lot of the information you present here.Please let me know if this okay with you. Appreciate it!
  • James L
    James L •
    The problem with any of the current internet tax schemes is they all consider the location of the *buyer* as the taxable location.  I think, if we're going to have tax collection on online purchases, the tax should be charged according to the *seller's* location.  A benefit to the online seller, as they only need to track one tax rate.  And it would force competitiveness between localities, in that they would have to reduce their tax rates if they wanted to keep business.  In the end, not only a benefit to the online buyer, but *ALSO* a benefit to the citizens of those communities.  And the resultant reduction in government that reduced taxes would bring benefits everyone.
  • Keith B
    Keith B •
    I am definitely against the Marketplace Fairness Act, as it is simply another way of raising taxes and that will definitely hurt small business. Big business like Amazon will stand to benefit and the real losers will be all of us US citizens as small business and opportunity are what drives the economic engine of our country. It will make it much harder for the small online retailer to compete and that is one of the last great opportunities available to individuals today who want to start a small business on a shoe-string. Regulations are already killing business and this is just one more....I hope it is not the straw that breaks the camel's back.
  • Christie  W
    Christie  W •
    I  was  not  aware  of  the  Marketplace  Fairness  Act,thank  you  for  posting  this  article.This  sounds  like  it  would  require  me  to  be  doing  morepaperwork  than  making  and  selling  my  products.Hopefully  this  act  will  not  become  a  law.
  • Charles F
    Charles F •
    I too am interested to know more about it from a purchaser's perspective. As a retailer, salesperson, or online shopper, what does this mean to me? How would the internet sales tax affect the online sales? Is that different from your in-person sales?There are online retailers that request the addition of the states sales tax if buyers state has a (state) sales tax.Another issue is that most people do not differentiate between the state's percentage and county's percentage and also the city's percentage of the payable sales tax, if applicable.Sales tax only means that a state, county, or a city has overspent in its budget or else known as a "Budget shortfall".Too bad for the tax paying citizens.
  • Arlene D
    Arlene D •
    It's just another way for the government to squeeze money out of the hard working masses. The online business has not as far as I can see, hurt smaller businesses because they have, as you say, all learned the benefit of adding internet website to aid in selling their products too.If a small business has ignored the benefits that a website can bring to their own business then it is their fault for passing up one of the greatest selling opportunities our technology has to offer.While I don't believe it will end online buying completely, it will slow it down, and rather than buying that DVD, CD, piece of audio equipment, fancy digital camera etc. At some mom and POP shop buyers will go to wal-mart, Target, or best buy. These are the companies that will gain from the new law.

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