Soooooo … state governments want a piece of that sweet, sweet online sales dollars.
That’s not the only reason that Senator Mike Enzi (R-WY) introduced the Marketplace Fairness Act, of course. But I’d bet it’s the largest one, no matter what Enzi says. It’s not been fun being state and local government since the collapse. Tax revenues are down while committed expenditures weren’t declining commensurately.
The MFA gives the states and other local governments the explicit power to collect sales tax revenue from online sales, something that’s been a grey area in many locations. Estimates are that it could lead to billions annually – and likely more over time.
Of course, this also has something to do with the lobbying power of large brick and mortar legislation. The fact that online stores could undercut the cost of items even though their cost of goods was the same as that of brick and mortar stores has long been seen – not just by the B-n-M companies – as an unfair advantage. Still, perhaps that’s done with now.
Raising cost is better for everyone! Yay!
OK, technically the bill won’t raise taxes on purchases. It’ll just make enforceable the existing taxes that aren’t being collected. Online shoppers are SUPPOSED to record their sales tax due and pay it themselves each year. Unsurprisingly, I know no one who does that.
Still, if passed, there will clearly be winners and losers. The estimate for U.S. online sales in 2011 was $255.6 billion. If a 5% sales tax rate is applied to that, we see an expected tax cost of $12.78 billion. That’s a significant cost increase for online sales and one I don’t expect to be absorbed by online sales.
The company with the biggest target on it is Amazon.com, Inc. (NASDAQ:AMZN), of course. The enormous online retailer did $61 billion worth of sales in 2012, which means we can expect it’s sales to generate $3.05 billion in tax revenue for several states. If Amazon.com, Inc. (NASDAQ:AMZN) can pass all of that along, fine. If it can’t, then a year which saw it turn a 0.19% net profit margin could start looking like a good year. Plus, a bunch of those smaller stores that people run through it will go away as some of these independents won’t want the hassle.
Another one that actively is worried is eBay Inc (NASDAQ:EBAY). I know this because I became alerted to the bill when eBay’s government relations group emailed me asking if I could get behind blocking the bill. The company is arguing that an Internet Sales Tax is bad for small businesses. It’s … nice … that they’re looking out for the little guy. Hmm.
More likely, they’re looking out for themselves. Like Amazon.com, Inc. (NASDAQ:AMZN), they don’t want those small businesses to go away and lessen their client base. Unlike Amazon, eBay Inc (NASDAQ:EBAY) could afford to absorb the loss given its 18.54% net margin in 2012. That, combined with steady share growth tells me that eBay is worried, but not frightened.