Small Business and the Marketplace Fairness Act

If you listen to the scary emails being sent by massive online businesses like eBay, I should be panicking right now. They say that the “Marketplace Fairness Act of 2013” will hurt small businesses like mine. In actuality, I agree with the Washington Post editorial that says this bill is an excellent move, and I’m happy to explain why.

First, what is it? The Marketplace Fairness Act, in simple terms, says that all businesses that make $1 million or more per year in interstate sales must collect sales taxes on those sales, and that states have to simplify their sales tax rules and procedures to make that easier for the businesses collecting the taxes.

I think this is a good idea because it puts everyone on an even footing. If you’re living in a state with an 8% sales tax, why should some out-of-state business get an 8% price advantage over the local businesses? With this bill, everyone would have to live by the same rules.

It also eliminates the loopholes that some of the huge companies are using. Currently, a business that has a physical presence in your state must collect sales tax there. So big chains incorporate their online business separately from the brick & mortar business — or set one up as a subsidiary of the other — and the rule doesn’t apply to them. With the Marketplace Fairness Act, the business’ physical presence (or lack thereof) in your state is irrelevant. With the exception of the individuals and small businesses that eBay and Etsy were created to support, everyone collects the taxes.

Columnists like Jeff Jacoby rail against the Act, but they either misunderstand or intentionally misrepresent what’s going on. In the linked editorial, Jacoby claims that small businesses will have an onerous burden placed upon them in sales tax collection, but he’s ignoring factors like:

  1. “Real” small businesses (those that do less than $1 million per year in interstate commerce) are exempted.
  2. Even the bigger “small” businesses (those doing less than $10 million per year interstate) are unlikely to have developed their own software for this. The major shopping cart players, including eBay, PayPal, Google, and their ilk, take care of sales tax for their customers.
  3. One of the requirements in the mandatory simplification of tax collection by the states is that each state have a single uniform tax base and a single point of contact within the state for sales tax collection. There aren’t going to be 9600 different jurisdictions to keep track of, as Jacoby claims, but 50.

Technically, you could say I don’t have a dog in this fight. My bookstore is in Montana, a state that doesn’t have sales tax. I still support the bill, however, because it bothers me to see the government effectively giving massive tax breaks to giant businesses like Amazon. I’m not just blindly following the position of the American Booksellers Association and all of the others who support sales tax fairness, though. I feel it’s the right thing to do.

When I travel, I like to stop in small local retail businesses wherever I go. It provides a local flavor that the chains don’t. When I go into a Barnes & Noble in Denver, it looks just like the ones in Orlando or San Francisco or Dallas. The independent bookstores, however, are dramatically different in all of those places, and I don’t like seeing them being killed off because the Federal government gives online booksellers a subsidy to compete with the established local businesses.

Do I have a problem with competition? Heavens, no. If a local store has a level playing field and can’t survive, that’s the way things work. But when their competition is offered an unfair advantage, I do have a problem with it. The Marketplace Fairness Act eliminates that unfair advantage.

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