EBay: Internet sales tax hurts businesses

Internet sales tax is a hot button in many state legislatures that are attempting to find ways to balance recession-depleted budgets by raking in the sales tax revenue. At the center of this is eBay (EBAY), which reported $8.5 billion sales in 2008 and served as the marketplace for almost $60 billion in transactions.

I spoke with eBay's Brian Bieron, Senior Director, Federal Government Relations and Global Public Policy, about the company's position on the subject.

DailyFinance: How compliant are your customers currently with state sales tax collection and payment?
Brian Bieron: EBay does not collect, maintain or otherwise compile data regarding the state and local sales tax collection practices of sellers on eBay. The overwhelming majority of sellers on eBay are entrepreneurial individuals and small retailers who use the Internet, each with a unique business or business model. In most cases a seller and buyer on eBay are not located in the same state and therefore under current federal tax laws the small business seller is not obligated to undertake tax collection responsibilities for the thousands of out-of-state government entities.

If you don't know, could you know if you wanted to, by querying your databases?
No. EBay is a marketplace that brings buyers and sellers together through the Internet, not a retailer. The tax responsibilities of the individuals and small business retailers who use eBay are not something that eBay is in position to monitor. We do know that in most cases where buyers and sellers come together on eBay that they are not located in the same state.

If all states were to agree on a uniform tax rate and provide a single clearinghouse for merchants to pay state sales taxes, as proposed by the Streamlined Sales Tax Governing Board, would eBay support or oppose legislation to make collecting state taxes mandatory for online merchants?
To be clear, the Streamlined Sales Tax Governing Board does not propose establishing a uniform sales tax rate among the states, nor does it even require a single sales tax rate within each state. Instead, the Internet sales tax regime envisioned by the SSTP would be a very complex set of rules and rates, with many thousands of state and local tax jurisdictions across the country. Furthermore, the rules are regularly modified and changed by the "governing board". Requiring small business retailers to collect and remit taxes based on thousands of different jurisdictions, keep the detailed records for every different transaction and tax jurisdiction for years, and be subject to audits by each state, is a long-term negative for small business retailers trying to use the Internet.

If the states were to ever come to Congress with a proposal where "all states were to agree on a uniform tax rate," eBay and eBay sellers would carefully review that proposal. But make no mistake, that is nothing like the complex and ever-changing Internet sales tax proposal being promoted by some states and giant retailers.

How do you answer the criticism that brick and mortar stores are not being treated fairly when forced to compete with Internet-based companies that collect and pay no sales tax?
A critical fact in the decade-old Internet sales tax debate is that the Internet is increasingly a part of every successful retail model. Most U.S. retailers, from the largest to the smallest, include the Internet in how they do business. The largest retailers in America, mega-retailers doing tens and even hundreds of billions in sales like Wal-Mart (WMT), Target (TGT), JC Penny (JCP) and Best Buy (BBY), are also some of the largest retailers on the Internet. They are combining the Internet with massive store networks to provide a new consumer experience to their customers, a business model increasingly referred to as "Brick & Click." Likewise, many of the smallest retailers in America, the small "Main Street" retailers who have been under siege in a business sense by the billion dollar mega-retailers for decades, have realized that the Internet is also a component of their 21st Century business strategy. Many are using eBay and other ecommerce enablers, such as paid search businesses, to reach new customers. Quite simply, in the retail space, the Internet is increasingly a part of everyone's business strategy, and for each business, it will play a part in long term success.

The rhetoric of sales taxes pitting Internet retailers against "Brick & Mortar" retailers is a vestige of the past, and is largely politically-inspired fiction. All of the biggest retailers and many of the smallest retailers have a store presence and an Internet presence. The real tax policy debate is about the appropriate level of burdens on mega-retailers and their small business competitors. The reality is that an increasingly large share of Internet retail already involves sales tax collection because the massive "Brick & Click" retailers have physical presence in nearly all states through their stores, and they collect taxes on their growing online sales because they offer consumers services such as in-store returns and product pick-up. The current Internet sales tax proposal is really aimed at placing the same tax collection burdens on the small business retailers. Treating a small business with a couple of dozen employees and possibly a part-time accountant and tax advisor the same as a multi-billion dollar business with thousands of employees and entire tax and accounting departments is not "fairness" and will not "level the playing field" in any way. It will unlevel the playing field in a way that harms small business retailers that are trying to compete online with mega-retail businesses.

What legislation, if any, currently under consideration in Washington do you think would best match your company's position on Internet sales tax?
EBay has consistently called for any proposal to change federal law related to sales tax collection and remittance to protect small business retailers. The Internet can empower small entrepreneurs, create new small businesses, create new jobs, and deliver new and better products and services to consumers across America. Creating a new tax collection burden for small retailers on the Internet will harm small business and make it harder to compete with the largest mega-retail corporations. Therefore, eBay has supported including a robust small business exemption, in any Internet sales tax legislation, so that small retailers are not harmed or undermined by any change. In terms of federal legislation, S. 2153 from the 109th Congress, a bill sponsored by Sen. Byron Dorgan of North Dakota, included a "Small Business Exemption" provision that would have empowered the US Small Business Administration to determine which small business retailers would be exempt from the new Internet sales tax regime. EBay has stated its support for that small business protection proposal as an appropriate way to protect and promote small business development and job creation as part of a new Internet sales tax regime.
Read Full Story