Why Today Is A Terrible Day for Online Merchants
(This post originally appeared on Forbes)
By all accounts, the holidays are off to a pretty good start for online merchants.
Studies from Adobe, ChannelAdvisor and Custora indicate that Black Friday sales this year increased somewhere between 20.6 percent and 24 percent over 2013. Reuters reports that “…sales online the day after Thanksgiving surged 22 percent from a year earlier as U.S. consumers, buoyed by higher employment and lower gasoline prices, flocked to computers and smartphones to hunt bargains.” An IBM study found that “online retailers had a good Black Friday, with sales up over 8% from a year ago.” Things were so hectic that large retailers including Best Buy BBY -5.46%, Neiman Marcus and GameStop all suffered website outages, slowdowns or just poor availability over the weekend. And according to recent data from the Consumer Electronics Association 77% of online shoppers over the holiday weekend said they went to the Web because they found better or comparable deals.
And that was just the holiday weekend. Today is Cyber Monday and this week is Cyber Week. The National Retail Federation expects about 127 million people to shop online today, down from 131 million last year. But an organization thatclosely tracks online sales expects $2.057 billion in online desktop sales today alone, an 18.6% increase from 2013 which is “…a larger percent increase from 2013 to 2014 than what 2012 to 2013 saw (18.3%). Desktop and mobile combined should reach about $2.5 billion.” Overall, it’s forecasted that Cyber Week will see over $9 billion in total sales.
That’s a lot of online sales. And you think it would be great news for ecommerce merchants. But unfortunately it’s not. In fact, it’s terrible news. That’s because in free, capitalistic societies like ours when companies and industries achieve immense success an inevitable thing occurs: the government takes notice. And it wants its piece of the pie too. Big numbers online means another try byWashington to enforce the collection of online sales taxes by states. Currently, brick and mortar retailers are forced to charge sales taxes to their local customers, whereas online merchants are generally allowed to avoid the tax if sales are made out of state. But today marks the beginning of the end of that favorable practice.
The Marketplace Fairness Act, a bill that was passed by the Senate and now sits in the House, would require Internet retailers to also collect sales taxes. As you can imagine, there’s a huge debate. “Bipartisan backers, from the National Governors Association to Foot Locker FL -1.64%, insist Internet retailers should place the same taxes on their products as brick-and-mortar stores do,” says one report. “Opponents, including some top House Republicans, argue the added taxes would crush e-commerce and require more regulatory burdens for online businesses.” Just this past week, a coalition of retailers warned in a new ad that online retail giants (i.e. Alibaba, Amazon) could put them out of business unless Congress grants states more authority to collect sales taxes on Internet purchases.
Increased online sales this holiday season will only add fuel to the debate. But as recently as this month, House leader John Boehner said he would block efforts to move the Marketplace Fairness Act forward. “The Speaker has made clear in the past he has significant concerns about the bill, and it won’t move forward this year. The Judiciary Committee continues to examine the measure and the broader issue,” a spokesman said in a statement.
The key words in that statement are this year. A compromise likely won’t move forward during the current lame duck session. But the pressure to act is considerable as the Federal government and many states desperately seek additional revenues to fund their deficits. And as a new Congress takes over in January and the numbers from what will likely be a very lucrative holiday season (particularly for online merchants) roll in, the debate on online sales taxes will certainly heat up. If you sell online, the impact could be enormous.
Because a national sales tax (which I support in lieu of localized taxes) is unlikely, your business would be forced to collect, remit and file sales tax returns in any state where you’ve shipped product. There may be exemptions for small businesses, but even if you’re among those exempted, you’ll still need to be responsible for tracking and then reporting your sales and maintaining necessary documentation in case of an audit. The regulatory and administrative burden would be a hardship. And some of the advantages that have attracted online customers to your site (lower prices, no sales taxes) would disappear. A new industry of accountants and lawyers who call themselves online sales tax consultants and specialists will rise to undertake this burden for you…at a cost. The Marketplace Fairness Act will not pass Congress, even the new Congress, in its current form. But I predict that something similar to it will pass this next session and likely be advertised as a way to go after the big online players like Amazon and Alibaba in order “level the playing field” for all.
And all of this because of a successful holiday season of online sales. So congratulations and happy Cyber Monday my e-commerce friends. Enjoy those profits while you can. And expect to give a good piece of them away to the government in the coming years.