MARKETPLACE FAIRNESS

on June 27, 2012 at 4:06 pm

June Smith

Momentum is growing for the passage of the internet sales tax bill called the “Marketplace Fairness Act” (MFA), sponsored by Senator Majority Whip Richard Durbin (D-Ill.) and several other usual suspects.

According to www.marketplacefairness.org, “The Marketplace Fairness Act grants states the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction – exactly like local retailers are already required to do. However, there is a caveat: States are only granted this authority after they have simplified their sales tax laws.”

Simplifying their sales tax laws. What an amusing thought.

A B.S. in BS might make the translation of the “use tax” jabberwocky easier. Not having one, I’ll attempt to “simplify” what it means to us: Taxpayers should be paying a “use tax”, the equivalent of their home State’s sales tax on Internet and out-of-state purchases, but that’s not happening. Most taxpayers don’t know it’s their responsibility and there’s no way for the states to track it or go after it.

With the Government’s help, the burden of collecting the taxes will shift from the states to large companies.

Small businesses with less than $500,000 may be exempted but the big “remote sellers” will take a hit ultimately affecting their price advantages over local sellers.

Numerous states have enacted similar MFA legislation to recoup lost “use” taxes from the big retailers, focusing on Amazon, since they currently only collect sales tax from customers in five out of the 50 states.

Amazon waged war with several of those states over it, called it unconstitutional, and terminated its relationships with affiliates in several of those states.

The battle lasted years and cost Amazon lots of money but they recently gave in and are now supporting the MFA because they figured out a way to make money on it.

Abe Gardener answered the question as to how Amazon will benefit in his recent piece online at Seeking Alpha www.seekingalpha.com:

Mr. Gardner wrote, “U.S. Internet retail sales topped $176 billion last year and are expected to reach $279 billion by 2015, according to Forrester Research Inc.

Trending: Thank You

“According to Internet Retailer magazine, Amazon will offer to handle the sales tax collection process for its third-party merchants in exchange for 2.9% of the tax collected. This means that Amazon has created a money printing machine. Amazon’s new offer is aimed at hundreds of thousands of independent U.S. businesses, ranging in size from tiny used-book sellers to major manufacturers that sell their products through the Amazon.com site.

“Over the past twelve months Amazon has posted revenue of $48.1 billion. Nearly 40% of the merchandise sold worldwide by Amazon is by third parties that use the company’s Internet platform. It has been estimated that about half of those sales required Amazon to collect sales taxes or value-added taxes from U.S. and foreign buyers. Under the Marketplace Fairness Act that percentage would grow significantly.

“Assuming $279 billion of U.S. Internet retail sales in 2015, Amazon could have $70 billion in revenue running through its platform. Let’s assume 75% of that ($52.5 billion) is a target for third-party merchant tax collection fees. Let’s further assume that sales tax is 7.5%.

“That means by 2015, $116 million of annual revenue (2.9% of $4 billion) could end up in Amazon’s checking account as a result of the Marketplace Fairness Act. By 2025 the aggregate amount could exceed $1 billion.”

Thanks, Abe. That certainly explains it.

The House Judiciary Committee will be holding hearings on the issue in July. Most likely, it will pass—and the “use tax”, soon to be simply known as sales tax, will pass on to us.

Marketplace fairness, indeed.

June Smith is the widow WBAL talk show host and Sun columnist, Ron Smith, who posthumously received an Emmy® for his lifetime achievement in television and radio at WBAL in Baltimore, MD. Smith was a media titan in the central Maryland area and beyond for almost forty years. Mrs. Smith’s tribute website honoring his legacy is www.FriendsofRonSmith.com. She is working diligently to raise one million dollars for the Ron Smith Pancreatic Cancer Research Fund at Johns Hopkins and is an advocate for H.R. 733, the Pancreatic Cancer Research Education Act. Her email is june@friendsofronsmith.com.