On Thursday, 25 small business owners and advocates from around the country will fly to Washington, D.C., to meet with their local representatives, asking them to vote against proposed internet tax regulations that could harm small businesses.
In a movement spearheaded by eBay, the small business owners and advocates will ask legislators to specifically reject the Marketplace Fairness Act (MFA) and the Remote Transactions Parity Act (RTPA). The MFA would allow state government to collect taxes on online sales from retailers without a local physical presence. The RTPA also allows tax collection from retailers without a local physical presence, but includes some additional provisions, including audit protection for sellers and a small seller exemption—initially $10 million but phased down for three years to $1 million.
The federal tax proposal is not a new issue, and several states have tried passing their own laws to collect millions in unpaid sales tax from online sales. Utah had not one but two in the last legislative session; neither passed due to concerns of the impact they would have on small businesses.
While eBay itself is not a small business, thousands of its sellers are considered small businesses. According to statements released on the issue, eBay agrees there should be an easier and more reliable means of collecting sales tax for online purchases, but argues that both the MFA and RTPA would do more harm than good for small businesses.
The MFA would hold small businesses accountable for tax compliance in more than 9,600 tax jurisdictions, just as if they were large businesses, and although there is an exemption for sellers falling under a threshold of $1 million—or even the RTPA’s initial $10 million threshold—eBay has stated concerns that such a threshold would discourage growth.
Dale Majors, former owner of Bike Wagon, which started as Majors selling bikes on eBay, echoed those concerns about the laws potentially stunting business growth, or encouraging small business owners to simply create multiple smaller businesses instead of growing to a larger business. And between costs for product, shipping, manpower, materials and other costs, a business owner making $1 million a year isn’t taking a lot home at the end of the day, he said, and any tax-collection software would cut into their slim profits even more.
“A million a year isn’t that big in ecommerce. There are so many costs,” he said. “These fees, the software fees that would come if we had to pay for government-mandated tax software, it’s not a small cost, it can be pretty significant.”
Majors is one of the 25 owners and advocates lobbying for a different approach to internet sales tax. Although he recently sold his business to Level Nine Sports, where he now serves as director of bike operations for the Salt Lake-based company, Majors said he still feels passionately about the issues small businesses face, particularly those that operate solely online.
“It’s not going to affect us the same way that it did, but it’s going to affect everybody who was in my shoes,” he said.
He said that while he isn’t opposed to the idea of a sales tax, and doesn’t think it would make a significant difference on the consumer’s end in regards to whether to shop online or at a brick-and-mortar store, the issue needs to be approached thoughtfully.
“I’ve always kind of thought that sales tax online would be inevitable; the important thing is just how they go about doing it,” Majors said. “Internet shopping has probably changed more lives in the last 10 years more than anything besides smartphones. The thought we’d just let something [affecting that] pass in a willy-nilly way is irresponsible, at least on the lawmakers’ part.”
eBay isn’t opposed to an internet sales tax or laws that require the collection of it, and has a couple of suggestions of its own. According to information released by the company on the issue, those ideas includes a call for a set of principles that promote tax fairness for all businesses, regardless of size and model, and excusing small businesses from audits or litigation from places where they have no presence or representation.