Myth: Physical retailers are disadvantaged because customers “showroom” their stores.
Fact: Internet retailers are at a severe disadvantage because of reverse-showrooming.
Proponents of this bill claim that physical sellers are at a disadvantage because of rampant “showrooming” – where a customer will visit their store to see a product only to then leave and purchase it online. This is false. A January 2013 report from PwC shows that consumers actually act in the opposite way. Only 2% of the 10,000 consumers surveyed research products in-store and then shop online. However, 23% did the opposite and went online to research before buying in-store. Customers come to our sites to read our product reviews, chat with our informed customer service representatives, watch our videos, read our detailed product descriptions, then they drive to the local Walmart, Best Buy, Home Depot, Target or other big-box retailers where they can buy the products immediately and do not have to pay shipping costs.
Myth: The Marketplace Fairness Act levels the playing field for physical brick and mortar sellers.
Fact: Internet Retailers are at a disadvantage and shipping costs alone, in most cases, far surpass sales tax costs for an order.
“Leveling the playing field” is a catchy one-liner concocted by lobbyists in D.C.. This bill does the opposite of “level the playing field”. It puts small businesses, who happen to sell online, at a huge disadvantage against Walmart, Home Depot and other mega-retailers.
Furthermore, even without the help of MFA, online sellers are actually at a disadvantage already versus our brick and mortar counterparts. Consider the following. Physical retailers: don’t have to deal with the constant harassment and litigation from patent trolls; enjoy cheaper credit card processing fees and can take cash payments without any processing fees; do not have to pay for packing materials; do not have to pay great costs to ship their products to customers across the United States. The spike in gas prices over the past several years has caused shipping costs to spike as well. In most cases, an order’s shipping cost far surpasses a sales tax cost.
Should we levy a shipping surcharge on all local sales even though they don’t have to be shipped? That too would be “leveling the playing field” in the name of fairness.
Myth: “Free” software, provided by the states will ensure that compliance is free and easy and Internet retailers will incur no costs.
Fact: In the first year the costs for integration, compliance, audits and remittance for Internet retailers will fall between $20,000 and $300,000.
We only need to look at the actual bill to completely discredit this myth. If compliance is “Free and Easy” as proponents claim, why is there a exemption threshold in the bill for businesses under $1M?”. Because it’s too burdensome. We could stop there, but let’s look a little deeper.
The “free” software calculates rates. This is a small part of the whole picture and neglects to take into account all of the other costs that retailers will bear in the domino effect. The fact that proponents would tout the free software as a complete solution to the problem of burden shows a gross misunderstanding of how online businesses operate. We will be forced to incur significant software integration costs to interface with the new “free” software. Integrations can take weeks and months and will cost tens of thousands of dollars for merchants with their own carts or merchants who use carts that do not support sales tax calculations.
Many of us will have to upgrade to Enterprise-level accounting software and upgrade to more expensive accounting systems. We will have to modify the products in our databases and provide training for our staff on systems usage and compliance rules of every state. We will have to register and file time consuming monthly and quarterly tax returns in 46 states. In the first year of the law, the integration, compliance and remittance costs for our businesses fall between $20,000 and $300,000. We’ll also be subject to costly and expensive audits. Given that profit margins for online sellers are already razor-thin, many of our members estimate that the compliance costs will exceed their entire profits for the year, forcing layoffs in some instances and business closures in others.
Myth: The Marketplace Fairness Act protects online sellers from audits.
Fact: The Marketplace Fairness Act subjects online sellers to audits from 46 states – where we have no physical presence (nexus), no political representation, and no right to vote.
This is, perhaps the most egregious falsehood being perpetrated by supporters of the M.F.A. The bill ONLY indemnifies us if there are errors that we can prove were caused by the state’s free software. That’s it. We are still exposed and will be audited for everything else in the process. The truth is, this bill will actually increase our audit risk by at least 4500%. We will be audited by states where we have no physical presence (nexus), no political representation, and no right to vote. We feel that we are being denied due process rights. And the small number of online retailers relative to all retailers, coupled with the states’ well-documented thirst for these revenues, ensures that we will be targeted repeatedly by the states.
Recent IRS behavior toward targeted groups has shocked all Americans. We will be subject to the “IRS’s” of 46 states, and we will not have recourse to representation in any of them. Furthermore, penalties for sales tax noncompliance tend to be onerous and many states can hold a company’s “Responsible Person(s)” personally liable for any unpaid sales tax liabilities. States can “pierce the corporate veil” and confiscate our personal possessions in order to collect unpaid sales taxes or penalties owed by our companies. Auditors can seize our homes, empty our personal bank accounts and drive us to bankruptcy if they determine we’ve made a mistake. Unlike Walmart, Amazon.com, Best Buy, Home Depot and other big retailers, we do not have have armies of accountants and tax attorneys in every state to deal with costly and time-consuming audits. Yet, one innocent mistake could put us out of businesses and even lead to personal bankruptcy.
Myth: Compliance is easy because each state has to pick one rate for all online sales.
Fact: Compliance is extremely difficult if not impossible.
The differing rates do create issues, but the biggest problems are with the labyrinth of product exemptions. Product exemptions and rules create major issues and makes compliance extremely difficult if not impossible. The Bill does not address product tax exemptions and other variances from one jurisdiction to another. For example, there are over 140 conflicting and overlapping codes for clothing and footwear alone. And in Wisconsin US Flags and WI State flags are sold tax-free, while other flags are subject to sales tax. However, a flag bundled with a flagpole changes the rules. These are just a few, of thousands, of examples. Often, adjacent cities have different rules for similar goods. Knowing which items are taxable and how items must be classified often goes to “case law” based on sales tax appeals and can change at any time for any state. Then there are sales tax holidays and other anomalies.
Many Internet retailers also sell via mail order and it is impossible to properly collect sales taxes on mail order items.
Myth: This bill will help small businesses.
Fact: This bill will HURT small businesses and it will HELP Walmart and other mega-retail chains. It is a weapon for Big Retail to crush Small Business.
In 2012, big-box retailers accounted for more than 83 percent of all online sales. Their share is increasing and will accelerate if the MFA is passed. Their retail oligopoly will grow. Walmart, Best Buy, Home Depot and Amazon.com support this bill because small businesses who sell online represent a nimble threat and they want to crush them once and for all. If this bill passes it will ensure that retailers below the $1M threshold will never cross over – the punishment for growing past is extreme and will lead to lost sales and much higher expenses. And those who are already over the threshold will be burdened immediately with high compliance costs and burdensome audits.
True Main Street physical retailers and true Main Street Internet retailers are not at odds. We are, in fact, allies. We both struggle to compete with big retailers who sell products below cost, engage in price wars, and use leverage, lobbyists, and political expenditures to get special favors from government. Walmart, Best Buy, Home Depot and Amazon.com don’t need more government favors.
Big Retailer wants to make sure our small businesses stay small forever or that we are pushed out of business altogether. Their newest weapon of choice in this permanent assault on us is the MFA.
See this bill for what it is – a weapon for Big Retail to crush Small Business.
For more facts and truths about the ill-conceived Marketplace Fairness Act, please see our videos.