|Thu Nov 10 2011 14:54:03|
Why eBay Opposes and Amazon Favors Sales Tax Collection Bill
By: Ina Steiner
Three U.S. senators introduced the Marketplace Fairness Act on Wednesday, a bill that would allow states to require out-of-state sellers to collect sales tax for purchases made by in-state residents. eBay continues to oppose such legislation and came out sharply against it. But Amazon, who had been a vocal opponent of state efforts to impose collection requirements, is now backing the new bill.
What is it that makes eBay vehemently oppose the new bill and Amazon support it?
Years ago, a Supreme Court ruling held that a retailer must have a "physical presence" in a state to constitute a tax nexus. The Marketplace Fairness Act would change that. (Read about the new bill in today's EcommerceBytes Newsflash.)
Unlike eBay, Amazon is a retailer itself and has a physical presence in many more states than eBay. For several years, Amazon has been dealing with state governments pressuring it to comply with their tax laws. Realizing it is unable to fend off states indefinitely, Amazon has begun negotiating with some states to get exemptions from collecting sales tax in exchange for creating a minimum number of jobs in the state.
Econsultancy believes that Amazon feels if it can't have its way, other online retailers shouldn't be able to either.
Econsultancy, a market research and consulting firm for the ecommerce industry, also notes that Amazon is probably the online retailer that has the greatest ability to deal with and absorb the costs of increased complexity and red tape that federal legislation would create.
In fact, Amazon is charging its third-party merchants a 2.9% fee for using its newly released sales-tax collection feature. (Previously sellers had been forced to pay sales tax out of their own pockets if they wanted to comply with their states' requirements to collect in-state sales tax. )
Amazon declined to respond to our recent questions about the legality of charging to collect a mandated tax and asking if it had built in a profit component to the fee it charged sellers for using the service.
eBay lets sellers use sales-tax tables, but if legislation was passed, it would likely find itself answering more questions from its millions of buyers and sellers about sales tax - eBay is a more complex system, and is only now rolling out a multi-item, multi-seller shopping cart that it's been working on for years and which still has limitations.
eBay faces consequences if it can't make it easy for sellers to collect sales tax. And how federal legislation would impact small marketplace sites such as Etsy, Bonanza, Ecrater, etc., depends on their checkout systems and how easy it is for them to add sales-tax collection functionality.
The proposed legislation states, "A State shall be authorized to require a remote seller to collect sales or use tax if the remote seller has gross annual receipts in total remote sales in the United States for the preceding calendar year of more than $500,000."
However, we've seen first-hand how small-business exemptions don't always work as intended. Companies like PayPal and Amazon are collecting social security numbers from sole proprietors who are exempt from the new "1099K" law because these payment processors are over-cautious about their own compliance. That's despite the fact that the law is very clear that small businesses are exempt from the reporting requirement.
Could some small businesses who are exempt under this new law end up being affected anyway thanks to marketplaces who are overzealous about compliance, or due to other unintended consequences?
What Do Online Sellers Think?
States are currently unable or unwilling to enforce existing laws that require residents to pay sales tax on out-of-state purchases - so how would they enforce this new bill? There appears to be nothing in the bill about how a state would force an out-of-state business to collect its sales tax or what the consequences would be to non-compliant sellers.
Let us know what you think of this bill and if it would affect your selling activity if passed.