Tax-free online shopping must end

Local governments are losing billions to subsidize e-commerce giants, while local job economies suffer

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As you've likely heard more than once, the subject of taxes has become a third rail in American politics, so it's not surprising that the proponents of the Marketplace Fairness Act say it's not a new tax. Technically, they're right. Many states have regulations on the books taxing sales by out-of-state retailers, but don't force them to collect the tax, because they can't. Instead, the buyer is supposed to declare it at the end of the year.

That, of course, almost never happens; in fact, hardly anyone even knows they're supposed to do so. For most of us, it is a new tax, and pretending that it isn't simply begs the question of fairness and ignores the fact it will take money out of the pockets of ordinary shoppers.

eBay leads the opposition -- with lies
You may have read that Amazon has dropped its long-standing opposition to the Marketplace Fairness Act, which under various guises has been floating around the Capitol for years. Understanding why isn't hard.

Amazon is decentralizing parts of its infrastructure in order to speed deliveries to consumers. Doing that means building distribution centers around the country, which by definition gives it the "physical presence" that allows states to compel it to collect sales tax. Indeed, the giant Web merchant is already collecting sales tax in a number of states, including California.

However, another Web giant is now carrying the ball: eBay. Over the weekend (as reported in the New York Times) eBay CEO John Donahoe sent an email to millions of eBay sellers urging them to ask Congress to kill the bill: "This legislation treats you and big multibillion-dollar online retailers such as Amazon exactly the same."

Baloney -- as Donahoe surely knows, the bill carefully exempts businesses with less than $1 million in out-of-state sales, a threshold that covers the vast majority of merchants on eBay. It's also important to note that states will not be required to impose that tax; if voters really hate the idea, they can lean on their legislatures to leave things as they are.

Donahoe also tries to scare merchants whose businesses bring in more than the $1 million sales threshold, saying “Are you prepared to collect sales taxes in the more than 9,600 tax jurisdictions across the U.S.?” More baloney. Amazon already collects taxes in a number of states, all of which have huge numbers of taxing entities within them. There are also third parties, including Avalara and TaxCloud, that have the technology to make sales-tax transactions transparent.

When the debate flared a few years ago Reed Hastings, the chief executive of Netflix, said, "We collect and provide to each of the states the correct sales tax. There are vendors that specialize in this (we use Vertex). It's not very hard."

Meanwhile, the loss of revenue is staggering, though the exact hit to the bottom line is impossible to measure. The best, or at least the most widely quoted, estimate is one made by researchers at the University of Tennessee in 2009, which puts the likely loss in 2012 at $11.4 billion. While that's a huge amount of money, it covers only one year. The researchers estimate that the aggregate loss to state and local governments between to 2006 and 2012 would total $52 billion.

Other estimates quoted by proponents of the Fairness Act put the annual loss of revenue at $22 million, according to the National Conference of State Legislatures. In either case, local governments simply can't afford to bleed that much revenue.

Given the bipartisan support in the Senate, the Fairness Act seems likely to win approval in that chamber and President Obama says he will sign it if the bill is passed by the House of Representatives. Although the Republican majority of the House is notoriously anti-tax, they are subject to pressure from the many local businesses and chambers of commerce that support the bill.

Sure, your purchases will cost a bit more if you have to pay tax on Internet sales. But is that relatively small savings worth the damage to your state and local governments? It's your services that will continue to be cut, and your neighbors (if not you) who will lose their jobs.

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at Follow me on Twitter at BSnyderSF.

This article, "Tax-free online shopping must end," was originally published by Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at For the latest business technology news, follow on Twitter.

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