Marketplace Fairness Act – Who Really Wins?

There is a bill going through the Senate right now called the Marketplace Fairness Act. It’s a bill that will force online companies like eBay and Amazon to collect taxes on all purchases, regardless which state they are shipping to. Currently Amazon only collects taxes from 5 states in the country.

I can hear you asking – “A new tax?! Don’t we already have enough taxes to pay? Why are both sides of the political fence backing this bill.. has the sky really fallen?!” Turns out, legally you’re supposed to be paying those taxes for your online purchases at the end of the year when you file your tax return. Surprisingly enough, Americans aren’t always so voluntary and forthcoming with that sort of information when tax time comes around. State and Federal Tax bureaus also haven’t been the best when it comes to enforcing it either.

There are many supporters on this bill. Small family owned stores and large brick and mortar businesses like Wal-Mart and Lowes are backing this bill. They believe that this will make the playing field fair when it comes to the pricing of goods -by stopping the tax loophole that lures frugal shoppers (like myself) into the world wide web of cheap internet consumerism.

Many of big internet retail operators like Facebook, Overstock and eBay do not feel the same way. Tod Cohen, eBay’s Vice President for Government Relations and Deputy General Counsel was quoted,

“This is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors.  It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity.” 

Unlike the other online giants, Amazon is behind this bill. Mostly because they have found a way to make money off of it. They will be charging their sellers 2.9% on the tax collected. So the small internet business that uses Amazon to sell their goods, has to shell out even more on top of the taxes they need to start collecting. I get it, Amazon is charging for a service they are providing. That doesn’t make me feel any better about shopping at a place that fought tooth and nail not to have THEIR goods taxed a few years ago for items being sold within the state they had warehouses in. But now that they found a way to monetize it, it’s OK. Capitalism at it’s best – which as much as it does drive the economy, sure feels like its kicking the small internet retailer owner in the junk.

There are some definite pluses and minuses to this bill. One plus is that brick and mortar stores will now be able to compete with the online retailers on the same level when it comes to prices. Another obvious plus is states will now be able to collect extra revenue without being forced to raise taxes. This is necessary in a time where our economy is terrible and states are constantly on the brink of bankruptcy. According to the Washington Post, this bill could bring in 23 billion dollars of new revenue each year. There are (of course) some downfalls too. States have to spend money redoing their tax rate system – by making them simple enough to collect taxes from anyone and anywhere. Also, both large and small internet retailers will be taking a direct hit. An article on seekingalpha.com talks about the repercussions of this on the internet retailer side. For example, they won’t be selling as much product because their prices aren’t as low and the smaller retailers may find it difficult to compete due to their already thin operating margins.

So back to my original question about the Marketplace Fairness Act, and who’s really winning. I think that the small town stores will have the chance to complete next to online retailers is great. I also think that the revenue brought in will definitely help states that really need it. Sadly, this is at the cost of the smalltime internet retailer. Not being able to offer the same low prices, while being forced to give another 2.9% on top of the taxes to Amazon – definitely feels like losing. The consumer is also losing, for I can no longer get that amazing deal on the big screen TV I wanted to buy. In the end, I think the big winner will be the big internet retailers like Amazon – who have basically found a way to print money.

Now if only people did the right thing and paid their taxes at the end of the year like they should have, this bill may not have happened – and I may have been able to get that super cheap big screen TV I’ve been wishing for.