When, Slingshot? I just read another article two days ago about a group of senators who are considering the bill.
I wrote my two senators and my representative the following:
Dear Senator Shelby:
I am writing you regarding proposed legislation to require internet retailers to collect sales taxes on behalf of the 45 states that charge sales tax. I have read of a handful of senators who are favoring such legislation, but have not seen your name mentioned. As such, it’s my hope that I can give you some points to consider before such legislation advances any further.
As you well know, it has been the law in just about every state for decades that taxpayers report qualified out-of-state purchases to their state governments, and pay a use tax equivalent to the state’s sales tax. The problem for the states is that only an estimated 11% of taxpayers abide by these laws.
What the proposed legislation aims to do is make internet retailers responsible for enforcing laws that the states cannot. I can find no provision in the Constitution giving congress the power to mandate that citizens act as enforcers of state or federal laws. Moreover, I question whether any legislators favoring this approach have considered just how devastating such legislation would be to small online businesses, and to future growth of the internet, one of the few industries in which the United States enjoys almost unchallenged dominance.
As you might guess, I operate a small online business, doing so full-time, and do online retail sales. My gross revenues vary, but in some years those revenues approach the $500,000 threshold that is being bandied about by the senators favoring this legislation.
Like many online merchants in competitive product niches, my profit margins are very slim. Depending upon the item sold, my gross profit margin ranges from 8% to 15%, with 10% as the average. I’m constantly trying new ways to increase sales, although doing so is not an easy task for any business, large or small, online or on the street.
Let us suppose that the proposed legislation is enacted into law in 2012, and in 2012 I reach the $500,000 mark in gross revenues. I now have to file monthly sales tax returns for 45 states. I can learn to do this myself, of course, and spend one to two days each month gathering the information and filling out the returns. Of course, while I am doing this, I’m unable to devote time to other areas of my business that bring in revenue. Thus, I am losing money.
The alternative is to hire out the filing of returns to an accounting firm. It would not be unreasonable to expect to pay $5000 a year or more for such services.
Given that my margin is 10%, this means that I would have to do $50,000 more in sales to cover this additional cost. As I mentioned earlier, increasing sales isn’t easy. If it were, I would increase sales a thousand-fold right now. It’s safe to assume that in 2012, should I hit the presumed $500,000 mark, I won’t be able to increase sales beyond that figure.
From where, then, will that $5000 for new accounting fees come? There is only one place: from my own income. I will have to pay myself $5000 less to do the work that 45 states have been unable to do, and I will do so with no compensation from the states or the federal government. I will take a loss in income because state governments haven’t figured out how to make their citizens abide by their laws.
The constitutionality of such legislation is suspect, and the immorality is appallingly blatant. The unintended consequence is the stifling effect that such legislation will have on the internet as a whole. Giant retailers such as Amazon will have no trouble assigning a small team of accountants to handle the filings, but the small and medium sized retailers—those who might otherwise someday become an Amazon—will be hit hard, or even driven out of business.
If a tax on internet sales is necessary, and I don’t believe it is, then the method least likely to drive online retailers out of business is to have the federal government collect the taxes from the merchants. The merchants file one form each month, submit the sales tax to the federal government, and the federal government distributes the taxes to the states based upon a formula, and the federal government takes a fee for this collection.
“Brick and mortar” retailers talk about leveling the playing field by enacting laws such as these, but these retailers already enjoy advantages over those selling on the internet, advantages that outweigh prices without sales tax. Their customers take delivery of the merchandise instantly, rather than waiting three days, five days, or two weeks. Usually the retail store’s presence is seen by passers-by, whereas internet merchants must spend enormous amounts on advertising and search engine optimization in order to merely have their businesses seen. The brick and mortar retail store has the advantage of letting the customer handle the product before buying. Internet merchants have a much higher return rate on merchandise, and thus higher costs, because customers cannot see the product until it is delivered.
I hope that you will consider my points if and when this legislation comes before you, and that you will reject it on moral grounds, as well as on the grounds that it will have an adverse impact on our economy, and will stifle growth of the internet as a whole, which is still in relative infancy.
Yours truly
