About the Issue
Internet Taxes Threaten to Kill the Growth and Job Creation Potential of Small Online Retailers
Online commerce has revolutionized American small business by allowing a Main Street store anywhere to become a Main Street store everywhere. Americans benefit from wider shopping choices and competing prices online. Small online retail businesses in thousands of U.S. communities are growing and creating jobs in their hometowns.
But Main Street retail businesses can continue to compete online with larger enterprises only if government doesn’t add new tax burdens that increase the advantage of bigger operations.
Online Retailers are Hometown Retailers – and Hometown Job Creators
Internet sales tax proponents speak as though online customers get all goods from out-of-state operations. In fact, online retailers operate in every state, in thousands of communities. They are the same people you’ve gone to for years in your hometown – except now they can market to customers nationwide, even worldwide.
We R Here believes any change in taxation of online sales must include a robust small business exemption (SBE) to bolster job creation among small business online retailers and allow those small businesses to compete and grow.
A Huge New Burden
The U.S. Supreme Court, in its 1992 Quill Corps. vs. North Dakota decision, ruled that forcing remote sellers to collect sales tax in states where they do not have a physical presence would constitute an undue burden on retailers and commerce in general. Now, some in Congress want override that well-thought-out decision and allow states to force online retailers to collect sales taxes for each customer’s home state. A small online retailer in a modest warehouse – even the owner’s home – would have to deal with ever-changing sales tax rates across 9,600 state and local jurisdictions.
Small retailers’ operating costs are already higher than those for giant companies – including higher shipping and insurance expenses. With such built-in advantages in economies of scale, big retailers that also sell online already are eroding small retailers’ online growth. From 2008-2010, “brick & click” retailers with sales over $20 million grew their share of online sales from 33 percent to 38 percent while the share for smaller Web-enabled retailers with sales under $20 million saw their share erode from 69 percent to 51 percent.
It’s simply not good policy to load massive new online sales tax burdens on small businesses and their consumers when America’s economy is still struggling and small online retailers already face many obstacles.
Properly Defining “Small Business”
Current bills in Congress limit the exemption to companies selling as little as $500,000 in goods online. But the Small Business Administration, charged with fostering opportunities for small businesses, defines “small” in the online community as retailers with sales up to $30 million annually and it seems reasonable to us that they be given the flexibility to determine the level of this critical small business protection. Rather than sales numbers, the SBA could tie new national sales tax obligations explicitly to companies with the personnel resources to comply. The Family and Medical Leave Act, for instance, applies only to companies with 50 or more employees.
We R Here opposes giving any non-federal governmental organization power to set or change a small business exemption. And we oppose any phase-out of the exemption as gutting a meaningful safeguard that will allow small online businesses, today, tomorrow and into the future to grow, prosper and better serve customers.
Join us to help small online businesses grow – and as they do, to create jobs and prosperity for America.
Hear what Senator Steve Daines says about the Marketplace Fairness Act after Tuesday's Taxpayer Advocates Rally Against the Marketplace Fairness Act.