Freedom, flexibility and creativity are the reasons people like us create our own small businesses. And in the name of government revenue, state and federal officials are threatening our little businesses’ ability to compete and survive.
They are pushing for an Internet Sales Tax which would affect anyone selling anything on-line. Some are on our side and the side of open competition and free enterprise in which everyone is taxed fairly, based on the services received from government. In Texas, my home state, Governor Perry vetoed legislation which would require internet sellers to collect sales tax. However, the legislature has inserted new language in an omnibus spending bill undoing the veto. Connecticut, Oregon, and California are among the states currently considering the tax and Senator Dick Durbin has already introduced legislation requiring it.
If you are a jewelry designer and are selling or considering selling on-line, you should follow the issue and e-mail your state and federal representatives opposing it.
The basis for the push for the internet tax comes from brick and mortar businesses which say that internet selling is unfair because buyers don’t pay a sales tax. (Consumers are supposed to keep track of their on-line purchases and pay a “use” tax, the equivalent of a sales tax, however, few comply.)
The legal basis for opposing a sales tax comes from a 1992 Supreme Court decision, Quill v. North Dakota where the Supreme Court ruled that retailers are exempt from collecting sales taxes in states where they have no physical presence, such as a store, office or warehouse. The theory is that these merchants don’t require state or city services which a sales tax would normally pay for. In the ruling, however, the Court did say that Congress could enact legislation requiring retailers to collect sales taxes.
As usual, these new state and federal initiatives have unintended consequences and, as usual, the unintended consequences negatively impact smaller, less affluent businesses. (Although Amazon, for example, aggressively opposes the internet sales tax, does anyone for a moment doubt that if forced by federal law Amazon won’t have the resources with which to comply. Of course it does. But do most internet merchants?)
Thus far, Amazon has made it clear that it won’t do business in states where internet sales taxes are collected and where these measures have passed in states like Illinois and Arkansas, it has fired all its affiliates, thousands of them, and killed plans to build distribution centers. Affiliates are sites that sell Amazon products and collect a small percentage of the sales as commissions.
And who do lawmakers suppose affiliates are? Older people seeking a means of supplementing income and young out-of-work men and women. Although there are a few “super” affiliates, there aren’t many. And, it should be noted that Amazon distribution centers employ thousands of people.
Proponents of the measure say that the new legislation targets large on-line businesses. Really? In Texas, state sales tax is collected on any product sold, regardless of the size of the seller. And the proposed tax did not make any safe harbor for small businesses. I believe that any federal law establishing the tax will be extended to all on-line businesses and tremendously increase the burden on small and very small businesses including pearl and bead stringers who are selling from their own websites and in venues like etsy.
Imagine for a moment the kind of record keeping that would be required. Sellers will be required to know the state sales tax rules and regulations of 45 states and some 7,500 different local taxing jurisdictions. That’s a nightmare even for large companies. For small companies looking to grow on-line, it’s an insuperable barrier to entry.
Let’s go back to the question of competition for a moment. The complaint from retailers is that internet merchants enjoy an unfair price advantage. But brick and mortar stores also have competitive advantages. Consumers can touch and handle merchandise. They can test it in-store. And, brick and mortar stores usually provide a level of service that internet retailers can’t match.
The internet provides a venue for merchants to sell products without the capitalization required for brick and mortar stores. With an out-of-work and aging population, it’s incredible that lawmakers are making it harder, not easier, to generate on-line income.