Internet Giants Amazon and eBay in a Tax War

For eBay, this is an entirely different situation. They too argued on behalf of “Main Street,” but their Main Street is not so much an issue of location as of size. Ebay's argument is that Main Street is not being decimated by tax-free online retailers. It is being annihilated by large retailers, wherever they are. Everyone knows what Wal-Mart did to Main Street, and if you don't, eBay is filled with statistics. “The threat to small independent retailers,” stated eBay Vice President for Government Relations Tod Cohen before the Committee, “is coming from giant multi-billion dollar competitors online and offline, which has been the case for nearly half a century.” His contention is that the advantages of having a local presence balance any advantages of not charging sales tax. It is the cost savings of being large in size that is killing small retailers. Besides which, many Mom and Pop local retailers also sell on the internet now, so a sales tax break helps them too. He notes that “Main Street” has been in decline since long before the invention of the internet, the victim of large retailers. “Sameness is not fairness,” he says, arguing that small online retailers deserve a break vis a vis the retail giants. Oh, did we mention, Amazon is a retail giant?

Now, we can understand eBay's sympathy with the small, online retailer. Ebay is, in effect, a consortium of small internet retailers. They do well, eBay does well. Of course, eBay itself is not small, and those “Mom and Pop,” “Main Street” retailers may not like eBay any more than Amazon. By combining offers of thousands of small retailers on one site, they have effectively created one large, at times cutthroat retailer to compete against them. Their tears, like Amazon's, may be crocodilian.

Perhaps the differences in approach can best be seen in the ludicrously large gap in what each proposes for a “small retail exception.” The proposed legislation to require out of state retailers to collect sales tax has an exception for small retailers. If Grandma is selling her potholders and handmade raspberry jam online, no one wants her to have to figure out what each state, and each municipality within each state, charges, and is the rate the same for jam as it is for potholders. And then, she would have to send her 40 cents to Idaho, 35 cents to North Dakota, and so on for the other 43 states with sales taxes. The question then is what is the amount at which a retailer becomes large?

For Amazon, which would of course be a large retailer, it wants a low threshold so as to reduce the number of competitors who could sell tax free. Amazon claims that nearly 30% of uncollected sales taxes comes from retailers doing less than $150,000 in annual sales. “A $150,000 exception would deny the states nearly 30% of the newly-available revenue,” they state, the implication being that the small retailer exception should ideally be less than $150,000.

Ebay, with its share of not-so-small small retailers, has a different point of view. They pointed out to Congress that it has let the Small Business Administration determine what constitutes a “small business.” The SBA, says eBay, has set $30 million as small for “electronic shopping,” and $7 million as the smallest of anything, pertaining to newsstands and kiosks. So, for Amazon, the ideal small business exception is less than $150,000, while for eBay it is $30 million. That's a difference of almost... $30 million!

Will Congress pass this legislation? I don't know. It has come up before. In addition to expected pressure from “Main Street” to pass it, there is a much stronger push this year from the states, desperate for additional revenue. Meanwhile, congressmen are generally loathe to be seen as raising taxes, and fair or not, many constituents enjoy this money-saving loophole to avoid sales tax. Neither Amazon nor eBay's motives are as pure and selfless as they might have Congress believe, but that does not mean they are wrong. Doing the right thing, even with self-interested motives, is still doing the right thing. The question is... what is the right thing to do?

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Internet Giants Amazon and eBay in a Tax War

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Internet Giants Amazon and eBay in a Tax War

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