Amazon and Walmart are spending major money to support MFA. They have major online selling operations, and incurring a “little more” administrative cost to pay taxes in every state isn’t going to cause them any heartburn.
Amazon is ostensibly the MFA’s main target, with the goal of eliminating their tax-free advantage against brick-and-mortar stores. Since they’ve been adding more warehouses (taxable presences) in more states in order to ship faster, they were heading down this road already.
The irony: Amazon grew to be the juggernaut that they are in large part by having lower prices and no tax. Now they can throw their weight behind the MFA, and crush smaller competitors who can’t afford to comply.
While the bill is written so that only companies making more than $1M in out-of-state revenue are required to charge tax online, it will actually impact a much larger percentage of businesses than you might think. It’s all about the Gross Merchandise Value (GMV), a financial term used in online retail to calculate revenue sold through a marketplace, which includes fees paid to that marketplace. While an online retailer may have a GMV over $1M, their profit is usually much less — putting them at a severe disadvantage.
To take pressure off small businesses, the MFA revenue threshold should be raised to at least $20M in GMV. Now that nearly everyone can afford to sell online — and most can’t afford not to — a low threshold will stunt small business growth. This doesn’t just impede a few entrepreneurs — it could have a major impact on an economy fueled by small businesses.
The U.S. e-commerce industry is a $226 billion-a-year business, growing at 30 percent. Many online shops that serve that market are small retailers or family-owned businesses. In its current form, this legislation will prevent those businesses from entering a thriving space and will shutter many small online retailers.
Bigcommerce has nearly 35,000 small businesses using our e-commerce platform to sell online. While our service doesn’t charge transaction fees, many of our clients sell through multiple platforms (Etsy, eBay, Amazon and their own e-commerce web store). We’ve spoken with a few of them about the MFA’s impact on them.
One Wisconsin retailer has a lot of overseas competition on a commoditized product. The tax increase would be hugely detrimental to his Halloween costume business. A consumer searching online for a particular costume could easily purchase it from a Chinese retailer based on lower cost.
Another business sells a niche product not available in stores. The owners aren’t concerned that the 6-8 percent increase in the total sale will deter buyers. They’re more worried about the administrative nightmare of sorting through state and local tax rates. They already work seven days a week to keep their business going, and wonder what they will do if they have to hire additional people or tax experts.
There are millions of small businesses in the U.S., and many more aspiring sellers. These dedicated, hard-working Americans are looking to fulfill their dreams and support their families. We’re at a watershed moment for e-commerce in this country. We’ll look back at this moment years from now and see that the government shaped the future of online selling. Hopefully we’ll remember how they sided with small businesses instead of favoring huge corporations with massive lobbying budgets.
Power is chief revenue officer for Bigcommerce, an e-commerce business that helps small to medium sized businesses sell more products and services online.