The online auctioneer giant eBay Inc (NASDAQ:EBAY) has just joined the growing fight over a recently proposed online sales tax, coming down firmly against the proposal and trying to enlist the help of its users to fight against the bill. On the opposite side of the aisle are some traditional big-box retailers like Macy’s Inc. (NYSE:M) and, ironically, fellow online retailer and eBay competitor Amazon.com, Inc. (NASDAQ:AMZN).
As the debate rages on over the fairness and practicality of an online sales tax, the question should be raised: who would stand to benefit the most if the tax is implemented? Traditional big-box retailers would stand to benefit superficially if the online sales tax is passed. But, over the long run, due to the dynamic nature of the online marketplace and the management of online retailers, those large online retailers would most likely be able to compensate for revenue losses relatively quickly and erase any adverse side effects of the tax.
Traditional big-box retailers
As previously noted, big-box retailers have, unsurprisingly, endorsed the bill. Companies such as Macy’s and Wal-Mart Stores, Inc. (NYSE:WMT), among others, contend that online retailers do not have to pay sales taxes on online transactions and thus enjoy an unfair competitive advantage over big-box stores. Supposedly, the act would “level the playing field” between brick-and-mortar stores and online retailers.
It’s no surprise that Macy’s, Inc. (NYSE:M) wants to see large online retailers pay more. Companies like eBay Inc (NASDAQ:EBAY) and Amazon.com, Inc. (NASDAQ:AMZN) prevent customers from going into Macy’s doors, not to mention the slow economy that retailers have endured for the past few years.
According to Frank Julian, the vice president and tax counsel at Macy’s,
We would support congressional legislation that brings about simplification, uniformity and vendor compensation in exchange for making all sellers collect tax, but it has to do all of that. It has to be a package. You can’t take one side of the equation without the other.
Macy’s certainly wants large competing online retailers to pay sales taxes since the online companies would pay the same taxes Macy’s, Inc. (NYSE:M) does, thus “equalizing the playing field.” Big-box retailers would most likely benefit, at least in a small tangible way, from having sales taxes imposed on online retailers.
Macy’s is in a good position to benefit from the new tax in the short term. Over the long term, Macy’s seems to be taking the right steps as a retail company preparing for the future.
Certainly, the future of the traditional department store seems to be in doubt. But Macy’s, the number-one department store chain in the U.S., is slowly morphing itself to compensate for the Internet age by cutting down on store size but boosting the appeal of its stores. Overall, Macy’s, Inc. (NYSE:M) is poised for growth whether the online sales tax is imposed or not.
According to the text of the Marketplace Fairness Act, the online sales tax isn’t going to be imposed on any business or individual who has less than $1 million in annual U.S. sales. The bill will allow individual states to require online vendors to collect sales and use tax on certain out-of-state purchases.
If this is so, then the question naturally follows: why would a company like Amazon want to have the online sales tax put in place? Wouldn’t the sales tax hurt Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY)’s bottom lines? Amazon’s position seems contradictory at first, but upon examination it seems to makes some fiscal sense.
A succinct description of the various tax code and legal reasons why Amazon wants the Marketplace Fairness Act can be found at DailyFinance.com.
Essentially, the bottom line is this: Amazon is willing to incur some relatively small new taxes to simplify the sales-tax process and increase its competitive advantage over the long run. eBay, on the other hand, would rather “let sleeping dogs lie,” so to speak. eBay Inc (NASDAQ:EBAY) executives are content with the way things are currently, and would like to continue enjoying large profit margins without taxes biting into them.