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Congress leaves marketplace fairness to states

Illustration of e-commerce

The Amazon marketplace is losing some of its attraction, Andrew Youderian, owner of the ecommerce community eCommerceFuel, recently reported, according to Forbes retail contributor Kiri Masters. Youderian conducts an annual survey of merchants and this year found “for the first time ever in our survey (that) non-Amazon sellers grew faster than Amazon sellers on average.”

One reason why is the rapid change in online sales-tax collection requirements enacted by dozens of states since the 2018 South Dakota v. Wayfair Supreme Court ruling.

‘An unmitigated disaster’

“The sales tax situation in the United States right now is an unmitigated disaster,” Youderian wrote on the eCommerceFuel blog. “Sadly, I know entrepreneurs who are getting out of eCommerce because they don’t want to deal with the nightmare of sales-tax compliance. It’s that bad.”

Youderian continued: “From anecdotal discussion, it seems merchants’ decisions regarding sales tax come down to two things: risk mitigation and the burden of compliance. You can use software that makes filing in dozens of states easier than doing this manually. But it’s still time-consuming and burdensome, especially for smaller merchants.

“In addition to logistical headaches, many sellers fear that if they DO file where they ‘should’ be filing, they’ll be targeted and fined for past taxes they didn’t collect properly. Even if initial filings go well, what merchant in their right mind wants to be subject to the bureaucracy of dozens of different states and municipalities? Imagine being audited by seven different agencies in one year alone. It’s not unrealistic.”

Etsy promises simplification

One online marketplace, Etsy, promises to simplify matters for vendors that use its platform.

“We want you to know that we have your back, and we’re hoping to make this transition as seamless as possible,” Michael Mincieli, tax director for Etsy Inc., wrote May 31 for the company’s Seller Handbook. “We’re working with states to simplify this process for Etsy sellers as these states implement their new sales tax rules.

“We’ve heard your feedback that these changes have been confusing, so we wanted to explain how these new laws will affect how we handle sales tax collection on Etsy, what is expected from you, and what we’re doing to advocate for laws that make it easier for you to run your creative business,” Mincieli added.

The wrong federal ‘fix’

On the last point, Mincieli said Etsy supports federal legislation “that harmonizes and simplifies sales tax for online purchases.” He urged Etsy sellers to ask their representatives in Congress “to support a new bill that protects businesses like yours from these new laws.”

That bill, the Online Sales Simplicity and Small Business Relief Act, was introduced in March by U.S. Rep. James Sensenbrenner (R-Wis.). If enacted, the measure would “ensure that states cannot require remote online sellers to collect sales tax retroactively on transactions made before January 1, 2019. It would also relieve small online businesses from sales tax collection obligations on transactions made in another state,” his news release said. It would accomplish that by exempting “small business sellers who gross less than $10 million in annual sales from collection duties until states produce a compact, approved by Congress, to simplify collection to the point where no small business exemption is necessary.”

Youderian, owner of eCommerceFuel, also says Congress should act.

“We desperately need action at the federal level to consolidate and streamline sales tax for the online world,” he wrote. “Until then, merchants will operate in gray areas, states will lose out on revenue and we’ll waste money trying to enforce a horrifically inefficient means of collection.”

The Home Furnishings Association agrees but doesn’t endorse the Sensenbrenner bill, which would fail to level an uneven playing field. Instead, it would preserve advantages held by many online sellers. Brick-and-mortar retailers in most states must collect tax on every dollar of sales. Online sellers should not be granted exemptions from that obligation.

Where is the Marketplace Fairness Act?

The Marketplace Fairness Act, proposed in past congresses, would set simplified, uniform requirements across the country for the collection of sales taxes. It would exempt businesses with annual gross sales of less than $1 million – a much more realistic amount.

Unfortunately, there seems to be no movement in Congress this year to pass such legislation, leaving a patchwork quilt of inconsistent requirements across the country and retailers in many states still at a competitive disadvantage.

Doug Clark is content manager for the Home Furnishings Association. Contact him at 916-757-1167 or dclark@myhfa.org. Reader his Policy Matters blog here.

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