Why an Internet Sales Tax Would Hurt Small Business

By: eBay Inc. Staff

The following blog post originally appeared on LinkedIn on May 5, 2013.

One thing I love about my role at eBay has been having the chance to meet small business owners across America and around the world. It’s humbling to know that these entrepreneurs are using the eBay marketplace and the technology we provide to reach consumers and achieve business success. Helping businesses compete and win is at the heart of what we do at eBay.

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As I have written in The Wall Street Journal and elsewhere, I am concerned that the Internet sales tax bill that is being considered by the Senate would hurt small businesses. Over the years, many small business owners have told me that that proposed bill would make it difficult for them to compete and grow.

The bill would require small-business merchants to collect sales taxes nationwide from more than 9,600 tax jurisdictions across the US. Small businesses that sell online would be subjected to the same tax obligations as multi-billion-dollar retailers that have stores and warehouses around the country. That simply isn’t fair.

Giant retailers have a requirement to collect sales taxes nationwide because they have physical presence nationwide. Likewise, today small retail stores and online retailers collect sales taxes for the one state where they are located. That’s a fair requirement. They are accountable to the one state where they are based and where they use local government services.

If the bill passes, small online businesses would have the same tax compliance obligations and face the same enforcement risks as giant retailers, despite the fact that they are usually located in just one state. There is no escaping the fact that the current bill gives tax collectors in every state unprecedented authority to threaten out-of-state small businesses with costly audits and unnecessary litigation. Software does not solve this issue for small businesses.

eBay is advocating for a compromise that would make sure that small businesses are protected from any unfair new tax collection burdens. Any Internet sales tax bill should exempt businesses with less than $10 million in annual out-of-state sales or fewer than 50 employees. That’s a reasonable approach to protect truly small businesses and fuel our economy.

Those lobbying for the bill claim that it “levels the playing field” for small stores that compete with online retailers. They say that online retailers are pitted against offline retailers. But this reflects an incomplete and inaccurate view of the retail world today. At eBay, we don’t buy into the stores vs. online premise.

Today, the multi-billion dollar chain stores are also major online retailers. The Internet and technology are a part of most retail models. Phones, tablets, shops and kiosks are expanding commerce beyond conventional storefronts and websites. eBay is leading this commerce revolution and we want to make sure that small businesses, online and offline, can compete in the new retail world.

The biggest threat for small businesses, both small online retailers and small independent stores, continues to be the competition they face from the retail behemoths like Amazon and the big-box stores. Multi-billion dollar retailers are lobbying for this bill because it puts new burdens on their small online retail competitors. It also makes it harder for small businesses to compete with the giant retailers on price.

Multi-billion dollar retailers enjoy many advantages over small competitors, including the ability to negotiate discounted wholesale prices and bulk shipping rates. They can negotiate tax breaks with local governments in exchange for building facilities in a particular district. Small businesses – whether online, offline or both – don’t have that leverage.

For years, big box retail stores muscled out the small independent businesses on Main Street. Today, those small retailers have a chance to compete using the Internet and technology. We recognize that new retail combines the best of online – efficiency, selection and value – with the best of offline – the emotional and social experiences of shopping.

At eBay we are aggressively focused on enabling growth for merchants of all sizes by helping them connect with buyers in the omni-channel, web-enabled retail world. We help merchants reach a world of customers through the Internet. At the same time, we’re providing the technology to help that merchant reach a local customer around the corner on his/her mobile phone.

The new world of retail can create opportunities for everyone, as long as Congress does not create new tax burdens that keep small businesses from competing and growing. Congress should protect small businesses by including a robust and meaningful small business exemption in any Internet sale tax legislation.

I encourage you to visit our policy site at www.ebaymainstreet.com to learn more and join us in letting your Members of Congress know they should protect small online businesses, not potentially put them out of business.