WASHINGTON — Online auction giant eBay is aiming to garner support on Capitol Hill against an Internet taxation plan that’s gaining momentum.
In a speech at the National Press Club on Thursday, eBay President and Chief Executive Meg Whitman blasted the proposed Streamlined Sales Tax Project, or SSTP, and its potential implications for small businesses.
“The resources needed to comply with SSTP could force thousands of businesses to shut their doors, and this is probably not what lawmakers want to see just as this economy is starting to recover, and jobs are being created,” Whitman said.
Among other things, SSTP will require online businesses to collect sales taxes from purchases made by residents from other states. The plan seeks to ensure that national taxing jurisdictions (that is, cities, states, and counties) receive taxes when their citizens buy from remote businesses — which are often missed, since current laws generally ask citizens to remit such expenses on their own, to their home jurisdictions (as what’s known as “use tax.”) On the flip side, the law presently requires businesses to collect taxes only in their home jurisdiction and in any jurisdiction where they have a physical presence (known in legislative parlance as a “nexus.”)
However, critics of SSTP contend that it will force online businesses — which might lack a nexus entirely — to do what offline businesses aren’t, and collect sales taxes from all jurisdictions, regardless of where they have a physical location.
“A small business operating on eBay is often a husband and wife team, maybe with an employee or two, operating out of their home,” Whitman said. “To add responsibility for tracking and remitting sales tax across potentially 45 states and thousands of tax jurisdictions coult shut them down. It’s simply too much to ask for our small entrepreneurs.”
Making matters tougher for small businesses is the fact that under SSTP, the U.S. will have thousands of different tax jurisdictions — potentially 7,900. Accordingly, businesses must correctly calculate and assess the appropriate amount of sales tax for each, and also remit the proper amount to the appropriate jurisdiction.
“Were SSTP adopted, it would double, or even triple, the nation’s taxing jurisdictions,” Whitman said. “SSTP would force businesses that operate over the Internet to collect and remit taxes in thousands of cities and counties across the country … the red tape for small businesses would be enormous.”
Whitman wasn’t alone in criticizing the SSTP as placing an undue burden on its sellers. Yesterday, during an event it labeled “The United States of eBay,” the auction site brought 51 of its users — one from each state and the District of Columbia — representing small businesses that buy and sell products and equipment on its site, and set up meetings with members of Congress.
Most of those meetings, naturally, focused on the Internet taxation issue, and gave several small business eBay sellers the opportunity to express their sharp disapproval of the SSTP.
“I think it’s ridiculous,” business-owner Paul Dell told eCommerce-Guide.com. Dell’s New Hampshire-based click-and-mortar sporting goods store, SportStop, does more than 50 percent of its business on eBay.
“If they really want an even playing field, why single out Internet companies for having to collect taxes for people 1,000 miles away?” he said. “It’s a burden that we shouldn’t have to face. We shouldn’t have to be singled out and come under someone else’s rules, where we don’t have any representation or way of changing those. If I don’t like the fact that it’s an 8 percent sales tax in California or whatever, I can’t do anything about it.”
Gary Neubert, who runs Tampa, Fla.-based GatorPack, added that without an exception for small businesses, the taxation plan could be disastrous.
“Even if we were doing $20 million a year, we wouldn’t have the accounting systems and staff to keep track of all those taxing jurisdictions,” he added. “They say there’s going to be computer software available, and I honestly don’t believe there could be a solution that’s powerful enough and available to small businesses.”
“Rather than try to set up a system to require [states’] residents, their citizens, to comply with the existing law, it’s easier for them to try to pass it off onto merchants,” he added. “It will be devastating for us, and it’s really hard to convince us that it’s a fair thing to do.”
Buddystoys owner Cheryl Celso-Weber agreed.
“It could potentially put businesses like me or smaller than me out of business, because these people will not have a clue how to keep track of 1,500 different tax jurisdictions,” said Celso-Weber, whose Ohio business sells collectables via eBay and its own Web site. “It will be extremely difficult for people like myself, who work on a small profit margin and make it up on volume … What about people that sell items and make a 50-cent profit? I have no idea how they would be able to keep up with those numbers” if SSTP is passed.
eBay’s small business users say they are hoping that, at least, Congress approves a version of SSTP that provides for some form of exemption for small businesses. In the current version of SSTP, businesses doing less than $5 million a year in business are excluded — but there’s no guarantee that the exception will make it into the final bill, and there’s also concern that the exclusion will discourage business owners from growing their companies.
“Without a deminimus exception for small businesses … it would require small businesses like ourselves to keep up with all the different taxing jurisdictions, and be responsible for charging sales taxes at different amounts, keep records, and turn around and remit all those taxes in the appropriate jurisdiction,” Neubert said. “For a small business like ourselves, that’s absolutely untenable.”
Whitman also said she would be in favor of an SSTP that simplified tax jurisdictions.
“Longer term, if the SSTP could have come up with 1 sales tax jurisdiction for all states, that would be workable,” she said. “It would increase the costs of businesses but also increase [tax] revenue. I think that if it truly could be simplified to one, three, [or] five tax jurisdictions on a national basis, it would be quite workable.
Yet because the proposals would drastically rework the SSTP, some critics painted the Project as a case of big business seeking to influence policy, while small businesses are hung out to dry.
“Big businesses have been leading the charge,” said Tod Cohen, eBay’s associate general counsel for global public policy. “They have locations in 50 states and already have to collect everything, so they want to make sure that those [businesses] that don’t have locations in 50 states [also] have to collect everything.”
“There are plenty of companies that — and I’m talking about the very large companies, your Wall-Marts and Targets — that have already invested [in multi-state taxing] … and have no option under the current law,” Cohen said. “But for our current sellers, who don’t have that, they are having new and substantial burdens being placed on them. It’s a question of big business versus small business, we believe.”
Similarly, eBay Dean of Education Jim “Griff” Griffith added that SSTP represents “probably the one single initiative that could directly affect what we believe is a very level and fair and balanced playing field that helps maintain and create small businesses. [The legislation] is almost anti-small business.”
Agreed Gatorpack’s Neubert, “The big companies that have a physical presence in each one of these jurisdictions are already collecting sales taxes, and they can probably deal with it easier than a small merchant who’s only doing business over the Internet.”
Instead of passing SSTP, some critics contend that existing law, which bases taxation responsibilities on businesses’ physical locations, is sufficient — but merely has yet to be adequately enforced.
“The catalog business has been out there for decades, and I think we should fall under the same rules they’ve established,” said SportStop’s Dell. “If I have a nexus of operations in a specific state, we’re responsible for collecting taxes in that state. If we don’t, we don’t.”
Neubert added that according to the current law, consumers already “should be paying their own use tax to their own states.”
States “already have an already unpopular and difficult-to-enforce law on their books to deal with” use tax, he said. “It’s just an unfair situation for states to require businesses that exist outside their own jurisdiction to become tax collectors for them.”
Christopher Saunders is managing editor of eCommerce-Guide.com.