On behalf of small business owners who sell their products on the Internet, we are requesting that the United States Congress reconsider or modify their current plans to implement a sales tax on Internet-based sales (the so-called Marketplace Fairness Act). We understand that the primary rationale behind this initiative is to “level the playing field” between bricks-and-mortar retail stores and online retailers. However, the proposal that was approved by the Senate on May 6, 2013, would not only create a more inequitable balance than the current status quo, it would also drive many smaller online retailers out of business. And, if an additional motive of this legislation is to raise the overall tax base, this turn of events would have the exact opposite effect – taxes currently being paid by these closed online retailers and their now-unemployed workers will be lost, as well as all of the other economic benefits that would have been derived from this once-employed workforce. When evaluating the Internet sales tax legislation that is currently proposed, please consider the following facts: 1. There is already, in fact, a “level playing field” between bricks-and-mortar retail stores and online retailers. While online retailers do not have to pay sales tax on out-of-state sales, they do incur additional charges that bricks-and-mortar retail storefronts don’t have to shoulder, including shipping costs and additional packaging costs. These two sets of costs tend to balance each other out. Product is then free to flow through the most efficient channel, and/or the channel the best meets the customer’s needs. With the proposed legislation, online retailers would have to charge their customers for both sales tax and shipping/packaging charges, putting them at a competitive disadvantage versus bricks-and-mortar retail establishments. 2. The administrative burden on small online retailers would be an absolute back-breaker. Today, a single bricks-and-mortar retail store has to abide by one sales tax code – the tax code associated with the jurisdiction in which it operates. There is a single set of tax regulations for these retail stores to administer, including the application of a common tax rate for all sales, and a singular tax reporting and remittance schedule to manage. Under the proposed legislation, however, an online retailer will have to abide by 9,600 unique tax codes, spread across 50 states, including different tax collection, remittance, and reporting requirements. Larger businesses may have the administrative resources to manage this Herculean task. Most small businesses, however, do not have the infrastructure in place to handle this, nor the resources required to build or purchase this infrastructure. 3. The current “exception” of $1 million in sales is far too low, and does not reflect the business model of most small online retailers. Small online retailers often sell single-unit items, with small profit margins, to customers spread across a broad set of tax-collecting municipalities. In most cases, for a specific tax period, single-digit quantities are sold into any given municipality. Under the proposed legislation, for EVERY one of these individual sales, online retailers will have to administer to the tax requirements of the unique jurisdiction in which the customer resides. The administrative overhead required to manage this will, in many if not most cases, erode any profits made on these smaller sales. 4. The Internet, and online retail, is one of the key sectors driving our economic recovery. Why stifle this through unnecessary regulation? If some sort of Internet sales tax must be imposed, please consider the following alternatives: 1. Raise the exemption limit -- perhaps to $10 million in annual Internet sales. Companies this size would have the infrastructure required to deal with the administrative task, or would have the overall sales volume necessary to justify building or acquiring this infrastructure. 2. Let smaller online retailers operating out of a single location manage their sales taxes according to the tax code associated with their physical location. This will give these businesses one set of tax requirements to manage on a regular basis, and sales taxes that are collected will benefit the local community in which the businesses and their employees reside. When applied across the entire universe of online retailers, things will, on average, even out across jurisdictions. 3. Let smaller online retailers abide by one tax code that is operated at the Federal level. Again, this gives these businesses one set of tax rules and procedures to manage. The Federal government can then decide if they want to retain these tax revenues to fund Federal projects, or allocate them across different jurisdictions. Small online retailers are not unwilling to pay taxes – they already pay their fair share of in-state sales taxes, income taxes, payroll taxes, etc., and most are happy to continue doing so. However, the administrative burden placed on small online retailers by the new Internet sales tax legislation approved by the Senate would put many of these small companies out of business, which is the last thing our economy needs right now.
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