Call It The “Marketplace Un-fairness Act of 2019″
Call It The “Marketplace Un-fairness Act of 2019″
Why would anyone on the Internet side of the street not decry Marketplace Fairness Act of 2013 as anything other than an affliction? Internet-only sellers are being victimized in a pivotal assault on the most beneficial commercial technology since the invention of the cash register. This is being done to favor merchant traditionalists who have failed to adapt.
Online sellers and affiliates, the participants in the Performance-Based-Marketing industry, should study this bill (S.1832, H.R. 684). It is likely to be enacted this year on a bipartisan basis despite the vagaries of the 113th Congress. If so, it will impact all businesses involved in the industry.
Professionals who transact business via e-commerce will not be affected initially if their interstate revenue is less than $500,000 per year. It is reasonable to assume, however, that since all brick-and-mortar merchants must collect sales taxes regardless of their level of revenue, it won’t be long before small online firms will lose their exemption.
Fans of the Act in the online marketing community hang their hats on a few factors. They maintain that the Act will restore confidence in an industry destabilized by the affiliate nexus tax laws (a.k.a, the Amazon Tax) in a number of states. These laws have harmed tens of thousands of affiliate marketers. Many have ceased to operate.
Under the Act, federally mandated sales tax laws will supersede the affiliate nexus legal construction of the states. This is welcomed. It is assumed that uniform state sales tax processes, under which online and traditional sellers are treated the same, will be a boon to all. There are industry participants who also assume that a new law that nullifies a bad law must be good.
Fairness is another benefit asserted on behalf of the Act and the one most touted by proponents. The preamble to the Act itself identifies, “to treat similar sales transactions equally” as the sense of Congress underlying the Act. The rationale is that the Act will “level the playing field” for brick-and-mortar versus online sellers of goods and services.
The Act is based on the assumption that brick-and-mortar sellers collect and remit sales taxes and this puts them at a competitive disadvantage. This disadvantage is compounded by their need to invest in land, leases, plant, and equipment. They must also pay high indirect costs for store or office overhead and high direct expenses such as payroll for sales staff. These costs can only be supported by prices higher than those of Internet-only sellers. Even sales taxes, which do not accrue to the seller, are perceived by buyers as indistinct from product/service prices. The Act, it is held, will give traditional retailers a fighting chance in competing against Internet-only sellers.
That’s one version of the case for the Act. Now consider the Marketplace Fairness Act of 2013 from the opposite point of view. It is a protectionist law that shields a well-lobbied faction of the retailing industry from the consequences of their ineptitude. This is not to say that all of the Act’s supporters are driven by such a base motive. Most simply believe its claim to fairness. But their motives do not matter.
Below are factors that affect the bigger picture beyond the playing field.
1. Administration – A physical store or a professional’s office need only comply with the sales tax laws of the state and locality in which it resides. Under the Act, an online seller will need to comply with the laws of all destination locations, that is, all of the places where its customers live. There are about 11,000 sales tax jurisdictions in the United States. Sales taxes due will need to be remitted to all applicable destination jurisdictions. This represents a revenue opportunity for well-funded data processing intermediaries, but it will be a significant new cost burden to small online retailers and professionals. Although the Act requires states to simplify sales taxes, this won’t provide relief to online sellers.
2. Distance: The Act’s fairness doctrine overlooks costs that burden online sellers but not traditional ones. Foremost among these, for product companies, is shipping. Shipping costs are borne not just for delivery but also for returns. These are costs borne by customers in the brick-and-mortar world. (Please note that many large retailers (e.g., Home Depot) and professional services firms (e.g., H&R Block) cross the business model divide by being both online and brick-and-mortar sellers. Does the brick-and-mortar division really need Congress to protect it from the online division of the same company?).
3. Competition: The Act will bring to an end the use of sales tax policy as an arena in which states compete for businesses. This would not be true if customers were subject to the sales tax rates of the location where online sellers reside instead of the destination location. This arrangement would encourage the continued use of sales tax rates as a locus for competition among the states. Such competition would be healthy for taxpayers, businesses, and states.
In addition to these considerations, there are objections to the Act based on its dubious constitutionality. These focus on the Commerce Clause. The question of the constitutionality of the Act, however, would be settled slowly and the outcome would be as much political as judicial.
What is most vexing about the Act is its purported goal of fairness. Even if the Internet business model does have lower costs that traditional retailing, this does not warrant restraining those who adopted the new technology in order to promote the interests of those who failed to do so. Protectionism is always pointless, never works, and hurts both the national economy and individual businesses alike.
Online sellers of goods and services were hurt by the departure of so many affiliates from the industry due to the affiliate nexus laws. Likewise, affiliates should be wary of a federal law that will have a negative impact on their clientele – the online sellers known in the industry as advertisers. Please review the Act. Then contact your Congressman with your opinion. Feel free to contact Biznissimo.com with any questions.
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