In online sales tax debate, $1M business is 'mom and pop'

Computerworld - WASHINGTON -- As Congress considers a law requiring online retailers to collect sales taxes nationally, debate is heating up over the revenue threshold for triggering collections.

The Marketplace Fairness Act, as it's named in both House and Senate versions of the bill, exempts online sellers with less than $1 million in remote sales annually from having to collect sales taxes in states where they don't have a physical presence.

Businesses above that threshold will have to collect and remit sales taxes in all states that collect sales taxes. But opponents of this act say a $1 million threshold is too low.

In a forum Thursday sponsored by the Internet Caucus Advisory Committee, representatives of Amazon, eBay and trade groups debated the merits of this proposed law. The debate was wide-ranging, but a persistent topic and sticking point was the revenue threshold that triggers collections.

A decade ago, Congress considered a $5 million threshold before before sales tax collections were required, said Brian Bieron, senior director of U.S. government relations and global policy for eBay. This has since shrunk to $1 million, he said.

"This is an effort to change the law in a way that most undermines the businesses that have the least amount of physical presence," said Bieron.

Bill Hughes, senior vice president of the Government Relations, Retail Industry Leaders Association, which represents big retailers and supports the proposed sales tax collection law, said the $1 million threshold exempts most online businesses.

"If you're over $1 million in sales, you're big business," said Hughes. "We aren't crushing any mom and pop stores with this legislation."

But Steve DelBianco, executive director of NetChoice, an opponent of the tax collection mandate, said that retailers live off of the gross margin, orthe difference between what something was sold for and the cost of goods sold.

Most gross margins are between 20% to 30%, so if a business has $1 million dollars in sales it may realize $250,000 in gross margin, out of which it must pay all its bills and salaries, said DelBianco

A business with $1 million dollars in gross retail sales "is no more than a one or two person shop -- let's be clear about that," said DelBianco.

Emmett O'Keefe, director of public policy for Amazon, argued that sales tax collections will not create a burden on these businesses because of the software.

"It's all automated," said O'Keefe. "It's easy, it's doable, it's built into every shopping cart that's out there."

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at  @DCgov or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

See more by Patrick Thibodeau on Computerworld.com.

Read more about E-business in Computerworld's E-business Topic Center.