The Mom & Pop Internet Sales Tax

John Donahoe: The Mom & Pop Internet Sales Tax

Small businesses are vastly different from billion-dollar retailers, and may be crushed by tax collection burdens.

By JOHN DONAHOE

This week the Senate is expected to vote on an Internet sales tax bill that would hurt small business and job growth in America. For small businesses, there is nothing fair about the Marketplace Fairness Act. The legislation stems from a fight between big bricks-and-mortar national retailers and big online retailers, all of whom seem unconcerned that small enterprises—and the jobs they create—are going to be collateral damage.
The trouble with the bill is that it treats mom-and-pop businesses the same way as it does multibillion-dollar retailers. Yet a small business with a dozen employees simply can't be lumped in with national behemoths such as Amazon and retail chains that have warehouses and stores around the country. The Marketplace Fairness Act should include an exception for small businesses. Why? Because otherwise an unfair burden will be placed on them.
Today small businesses that operate online are responsible for collecting sales taxes on purchases made in the state where they are located. That is fair. But the proposed bill would require them to collect sales taxes on behalf of every state where they make a sale. That would make it difficult, if not impossible, for them to succeed.
While compromise seems like a foreign concept in Washington these days, eBay is advocating a simple solution. Small businesses with fewer than 50 employees or with less than $10 million in annual out-of-state sales should be exempt from the chore of collecting sales taxes nationwide. These are reasonable exemptions, equivalent to other federal standards, such as those set by the Affordable Care Act and the Treasury Department's Office of Tax Analysis.
Unfortunately, certain lawmakers and big national retailers who support the bill have refused to consider a reasonable and robust small business exemption. As is often the case in politics, the small business voice is getting lost in the debate, while big retailers with the deepest pockets are dominating the conversation.

Getty Images/Brand X

On Sunday, I began sending a message to the entire eBay community updating them on this situation and encouraging them to share their views with Congress on the importance of protecting the smallest businesses and entrepreneurs from unfair and crippling tax burdens. Over the years, I've heard repeatedly from small business owners who sell in the eBay marketplace and other online channels that expanding Internet sales taxes to all transactions would hurt their ability to grow or create jobs and to fuel the price and service competition that creates value for consumers.
This bill could put entrepreneurs like Colleen Rast out of business. Colleen and her three employees run all of their business operations out of a small office in Kalispell, Mont. Although her apparel-sales business is located in a state without sales taxes, the Marketplace Fairness Act would require Colleen to track and comply with the tax laws of more than 9,600 tax jurisdictions across the U.S. It would create costly paperwork and accounting burdens and subject her to potential audits and litigation from tax collectors in states that are more than a thousand miles away from where she lives and works.
The $10 million exemption we propose would protect businesses like Colleen's. To put the exemption in perspective, Amazon makes more than $10 million in sales every 90 minutes. So we believe this is a reasonable exemption that recognizes that small businesses are vastly different from the nation's billion-dollar retailers. These are very small startups, mom-and-pops and entrepreneurs whose businesses and cost structures are nothing like billion-dollar retailers. They should not face the same tax-collection burdens.
This isn't a debate pitting the Internet against Main Street. This is about big retailers, like Amazon, trying to undermine small online businesses. Amazon supports the bill, while at the same time it negotiates local tax exemptions across the country where it builds warehouses. Small businesses don't have that kind of bargaining power.
I believe that Congress would not want small businesses to become the collateral damage in this debate. Many of the largest and most renowned companies in America began as small businesses.
Enabling small businesses and entrepreneurs to grow, and giving consumers across the country and around the world the opportunity to connect with them, is at the heart of what we do at eBay. We want to continue this tradition and make it possible for small businesses to keep their virtual doors open, so that they can compete in the marketplace, grow into bigger businesses—just the sort that should be subject to the Marketplace Fairness Act.
Mr. Donahoe is the president and CEO of eBay Inc.