The Marketplace Fairness Act of 2015 (MFA) is a slightly updated, equally harmful reboot of its predecessor the Marketplace Fairness Act of 2013. And it’s still missing one key ingredient: fairness.
This new bill would require eCommerce sellers who gross over $1,000,000 in remote (out-of-state) sales per year to collect sales tax from buyers in all forty-five states (plus D.C.) that impose a sales tax.
Sellers would have to determine the sales tax rate for every sale in the United States’ nearly 10,000 sales tax jurisdictions and remit sales tax to the taxing authorities in each state. Basically, they’d have to understand 46 different sets of sales tax laws and learn 46 different systems.
The purported purpose of this act is to “level the playing field” between brick and mortar stores, who almost always have to collect sales tax, and online sellers, who sometimes don’t have to collect sales tax. Ask ecommerce merchants how fair it is and they laugh because they don’t want to cry. States would be the big winner here because they’re broke. They get new sources of revenue without having to tax their own residents.
But what the suits in Washington D.C. just don’t understand is the terrible compliance burden this law would place on the people who drive this nation’s economy – our nation’s small businesses.
Congress doesn’t get that:
1.) ECommerce Businesses ARE Mom & Pop Businesses – One argument you’ll see proponents of the MFA make time and time again is that “eCommerce businesses” are putting your local mom & pop businesses out of business.
Guess what? These days Mom & Pop aren’t selling egg creams at the soda fountain. It’s 2015. Mom & Pop are selling housewares on Amazon and collectibles at antique malls using their Square reader. When you impose unfair regulatory burdens on “eCommerce” you don’t hurt Wal-Mart, with its army of accountants. You hurt Mom & Pop who find themselves spending valuable time wrestling with the burden of sales tax compliance.
2.) One Million in Gross Revenue Doesn’t Mean What You Think it Means – Margins in eCommerce are tiny. And thanks to overhead, platform and payment processing fees, logistics, increased competition and yes, unreasonable regulatory compliance burdens, profits are only getting smaller. An eCommerce business with revenue of one million may be enough to sustain Mom & Pop, but it certainly isn’t enough to employ a full time accountant to deal with the sales tax burden the MFA would place on this business. Congress doesn’t get that increasing the sales tax burden even further could cripple an e Commerce business of this size.
3.) The Burden of Tax Collection isn’t “Minor” – And Congress isn’t the only branch of the Federal Government that doesn’t understand small business. The Supreme Court has also shown themselves startlingly tone deaf on the issue of “internet sales tax.” In his concurring opinion on the Direct Marketing Association v. Brohl decision earlier this month, Justice Anthony Kennedy referred to imposing a “minor tax collection duty.”
Nothing about navigating 46 different sets of sales tax laws, figuring out the wildly varying sales tax rates at the point of origin of ever single sale, and calculating sales tax collected in nearly 10,000 sales tax jurisdictions is “minor.”
It’s clear that the only people who consider sales tax collection a “minor” duty are people who have never had to try to navigate it themselves.
4.) Free Software isn’t a Magic Bullet – Congress also doesn’t get that “software” isn’t a cure-all. As someone who has made a living building technology companies that solve backend administrative problems for small businesses through software, I’m particularly positioned to see that software doesn’t have all the answers.
Case-in-point: The Healthcare.gov site. While that site was complicated, it was far less complicated than dealing with 45 states and thousands of sales tax jurisdictions. And that’s not to mention that, in order to collect sales tax at the point of sale like the MFA specifies, it would have to integrate with the thousands of channels online sellers use to sell their products.
And just because software is “free” doesn’t mean a small business owner has the time or tech acumen to implement it. My company, TaxJar, makes a product that helps online sellers by automating sales tax compliance. If the Marketplace Fairness Act of 2015 passes, we would most likely make a lot of money. But we are fully against the MFA because our mission is to make life easier for online sellers. Dealing with sales tax is hard enough for our users without adding this extra layer of chaos in the mix. Congress needs to talk to the folks that would be affected by this law and learn what fairness really means.
Do you have an opinion about the Marketplace Fairness Act of 2015? Say your piece in the comments.