Comment: The US Internet Sales Tax

Depending on which side of the fence you sit - and there are very few fence-sitters in this debate - the US internet sales tax is either incredibly simple or horrifically complex.

For store retailers battling against the likes of Amazon and politicians desperate to raise taxes the calculation is straightforward. In 2003 internet sales accounted for 1.6 per cent of total retail sales. By last year that figure was 5.2 per cent or $226 billion (£146 billion).

If the Marketplace Fairness Bill was to go ahead it would add a much needed $11.4 billion to the tax receipts overnight, estimates from a University of Tennessee suggest. Others suggest it could be more like $22 billion. It will also make Joe Public that little bit more likely to visit the store in the mall than to turn on his laptop.

The bill requires any business that makes $1 million or more a year in online sales to collect taxes and send them to the states where goods are delivered. Different states have different sales taxes and even different counties can have different specifications.

Ebay's chief executive John Donahoe said it will have a disproportionate effect on small businesses. It says the threshold should be raised to exempt online retail firms with of less than $10 million or fewer than 50 staff. 

In the UK the equivalent issue would be business rates. Although that is, on one level, possibly a gross oversimplification, there are many similarities. UK retailers pay disproportionately higher rates than their online counterparts. The imbalance is gaining political resonance among MPs and business groups representing retail stores – particularly small retailer lobby groups whose members are less likely to be ahead in the online game. The argument is: why in a digital age are business rates based on property, especially when that property itself is becoming a liability. Watch this space.

Back in the US, ABC news says that online sellers are legally obliged to be paying these taxes anyway but they rarely do. The political right, normally against new taxes, is therefore open to support the idea because this tax would not be ‘new’. 

In many states, consumers are expected to settle the bill when they file their state tax returns. But authorities complain that few internet shoppers comply with the requirement and online firms have hitherto shirked responsibility saying they should not pay taxes in states where they have no employees or physical presence. In 2008, Jeff Bezos of Amazon said of pressure to force web retailers to comply: ‘It’s not fair.'

On Thursday the Senate took its second vote in a week on the topic and passed it 63-30. However, it delayed the final vote until May 6 when they return from a week’s holiday.

Even with lobbying from firms and shoppers it seems unlikely that will swing back in such a short space of time, commentators say. 

Amazon, unlike its rival eBay, has now emerged as an unlikely supporter. Commentators suggest that, because Amazon has been busy building more and more same-day delivery centres in an increasing number of states, it can't avoid the tax in many places. So, despite benefiting for years as smaller rivals are doing now, it may as well take the rest down with it. Although shopkeepers and analysts say its tacit support springs from the strategy is not now based on price but service such as delivery speed. Either way, they add, it is too late to suppress its dominance of Amazon.com on the retail landscape.

Bill Hughes of the Retail Industry Leaders Association, which represents about 200 of North America's biggest retailers including Wal-Mart, Target, Sears, Home Depot and Best Buy, said: ‘The overwhelmingly bipartisan support for levelling the playing field is rare in today's political environment and paves the way for a level playing field once and for all.’

However, because it looks like a new, additional tax from the outside - and possibly to many American citizens happy to be saving money on their online shopping - its supporters fear it may hit trouble after it passes through the Senate and into the House of Representatives.

One of the main sponsors of the bill, Steve Womack, a Representative from Arkansas, told the Associated Press there was ‘a lot of political difficulty getting through the fog of it looking like a tax increase.’

One analyst speaking to the Financial Times earlier in the week gave the bill only a 30 per cent chance of success.   

But while lobby groups like the National Retail Federation and national bricks and mortar retailers like Wal-Mart support the bill, online retailers led by eBay say the bill would tie internet firms up in complicated regulation.

It is already being labelled as anti-free market and is seen by the online community as potentially stifling growth in an innovative sector.

Some online retailers, including craft hub Etsy.com, have warned that the complications for smaller firms found to be over the $1 million hurdle could be disastrous and that the bill needs much more consideration before it continues. Althea Erickson, director of public policy for Etsy, said the $1 million mark is below federal definitions of small business.