Legislation is making its way through congress that will impose sales tax on most online business transactions. Currently, businesses are required to collect sales tax if they have "significant" physical presences within a state. This can mean either a retail location or a warehouse. If a retailer is completely out of state (say I'm in Ohio and all of the business's facilities are located in Maine) it is not required to collect sales tax. Generally speaking, the states require that in such cases consumers voluntarily report the purchase to their state of residence and make the appropriate payment, but in practice, basically no one does this and it's unenforceable.
As online retail has grown, more and more people have advocated that online retailers be forced to collect sales tax as well. The populist explanation for this is that it protects "mom and pop businesses" from being crushed by Amazon. If local retailers have to charge sales tax while out-of-state online retailers do not, then online retailers get to offer 7-12% lower prices right out of the gate.
There's some truth to this, though I think that the main things that afflict small local businesses are that they often don't offer the selection of online retailers, plus going to your computer is more convenient than going to a store. However, what it misses is that many of today's "mom and pop businesses" are online businesses. The current legislation does exempt businesses with total sales under $1 million, however that's not really as much as it sounds. If an online retailer is making 10-20% gross margins after cost of goods and shipping, a business with $1 million dollars in total sales is probably only supporting 1-3 people at fairly middle class wages. For that kind of company, having to deal with the paperwork involved in collecting and paying sales taxes for 50 different states would be a major obstacle.
When I briefly ran a very small online retail business, just dealing with the sales tax for the 3-5 orders a quarter from my own state was a pain, having to do that times fifty seems pretty unimaginable. My business didn't have anywhere near $1 million in sales, but I did once work for a couple years at a small business which had $20 million in sales and employed 15 people, and even there having to file quarterly sales taxes with fifty different states would have been a massive increase in our workload.
In the modern world, "small business" does not just mean brick and mortar shop fronts in your home town, it means small specialty retailers that operate in the online world. Two I particularly like that provide good examples of this kind of dynamic online small business are Classic Shaving and Saddleback Leather Co. These offer the kinds of specialty products you might not be able to find outside one of the largest cities (if there) through an online environment, and do so with far more personality and passion for quality products than online (or brick and mortar) mega-retailers. They're also the size company that would be hit hard by this kind of legislation.
By comparison, filing taxes in all those states is something Amazon can do without even batting an eye. And if everyone has to do it, it doesn't impact their price advantage either. That's doubtless why Amazon is supporting the bill.
There's a myth out there that big businesses hate regulation. They may not love it, but in fact they often are willing to make friends with it because they have deep enough pockets to coopt the process of writing it, and they know that they can afford to comply with it better than their smaller competitors.
Evening Note for Monday, April 24
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