EcommerceBytes-NewsFlash, Number 3108 - July 15, 2013     1 of 4

Small Sellers Fly to Washington to Oppose Online Tax Bill

By Kenneth Corbin

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In an effort to countervail against the lobbying might of major retailers pushing for new online sales-tax legislation, a coalition of small sellers, organized under the name eMain Street, has formed in opposition to the Marketplace Fairness Act, and recently dispatched some 30 members to Capitol Hill to make their case.

Throughout those meetings, sellers pressed their points about the harm that could come from the bill, contending that if states were able to compel outside online sellers to collect and remit taxes on purchases made by their residents, the cost of compliance would put many out of business.

"We're very likely to close our doors," if the bill becomes law, said Susan Lindsey, who runs the store Sundry Shop in Denver and traveled to Washington for the eMain Street fly-in in late June. "This law would just wipe us out - we couldn't do it."

All the meetings were conducted with members of the House; the Senate passed the Marketplace Fairness Act in May.

The bill would move toward closing what its supporters describe as a loophole that allows many online purchases to go untaxed, even when the tax is due. Under current law, online sellers generally are only required to collect sales tax on purchases made by shoppers in states where they have a physical presence, such as an office, warehouse or call center. Shoppers in the 46 states with sales taxes are required to report untaxed Internet purchases on their annual returns, but most are either unaware of that obligation or ignore it.

The Marketplace Fairness Act would give states the authority, under certain conditions, to compel out-of-state retailers to collect and remit the tax on the purchases that their residents make. Those conditions include taking steps to simplify state and local tax codes and to provide retailers with free software to help with the accounting burden. The bill that passed the Senate would exempt sellers with less than $1 million in annual remote sales.

But the members of eMain Street - 650 and counting - warn that those provisions will do little to cushion sellers from the impact of having to become tax collectors in every state with a sales tax law on the books.

On June 25 and 26, sellers from around the country met with 50 House members and staffers, many serving on the Judiciary Committee, which has jurisdiction over the bill. The eMain Street coalition formed in early May, organized by brothers Drex and McKane Davis, who run the shop, based in Mesa, Ari. Drex Davis, the firm's CEO, noted that all the sellers who made the trip paid their own way, and that the fly-in was orchestrated as a purely grass-roots effort, with no support from eBay or other opponents of the bill.

"We were a coalition of the willing. Whoever could afford to come, came," Davis said.

Estimates of the uncollected tax revenue from online purchases vary widely, with some rising to the tens of billions. In their meetings with lawmakers, eMain Street sellers were shopping one study that pegged it closer to $4 billion, and projected that the costs of implementing the bill and the new tax framework it would entail would soar well beyond that mark.

Members of the coalition also made their case that the promise of free accounting software stipulated in the bill glosses over the significant costs of implementing, customizing and maintaining the software, as well as the burden of training staffers on the systems.

Drawing on estimates from developers about the cost of integrating tax software such as Tax Cloud and Avalara into their online shops, eMain Street sellers argued that setting up "free" software would put them out anywhere between $20,000 and $300,000 in just the first year. Davis said that estimated that its first-year costs would run around $50,000.

"I think they were amazed to learn that the software wasn't plug and play," said Lindsey, who argues that the software solutions available today aren't suited to handling the accounting needs of a store like hers - a consignment operation - or any other multi-channel operation. She also imagines the data-entry nightmare of coding all of her merchandise so that whatever software program she used could calculate the appropriate tax for out-of-state sales.

"We would be faced with an unbelievable task of coding our merchandise so it can be coded by the software, but in addition to that we don't even have a software solution," Lindsey said.

Then, too, opponents of the bill warn that new tax-collecting requirements would expose them to audits at the hands of out-of-state tax administrators from across the country.

"We had all kinds of people from different businesses and backgrounds travel from all over the U.S.," Davis said. "Small $1 million businesses right at the threshold who barely make ends meet were able to show representatives the quotes they received for software implementation costs and show how the so-called "free" software is not free. We had people who have been through costly sales tax audits in their home states come and talk about their experiences, their actual costs, and how these audits work in the real world."

Providers of sales-tax software dispute those characterizations, and have argued that they, by virtue of their relationship with state tax authorities, are positioned to shield sellers from the disruption of an audit.

The eMain Street coalition breaks company from eBay, which has said that it could support the Marketplace Fairness Act if the exemption for small sellers were raised to $10 million and expanded to include companies with fewer than 50 employees.

"eBay did not help arrange the meetings and we haven't ever coordinated with them," Davis said. "We appreciate the work they're doing, but our approaches to the law are different. They support a small seller exemption. We don't. Our feeling is if you have a tax law that is so complicated, so complex and convoluted, that you have to exempt anyone from complying with it, you have a bad law and need to start over."

About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.

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