If you operate an eCommerce sales website on the Internet, then you may have heard about the Marketplace Fairness Act. It is a bill that mandates all sales on the Internet be taxed regardless of where the buyer resides in the United States. The actual argument of the bill affirms that there is lost revenue from sales as eCommerce operators are not subjected to paying sales tax on those items purchased. However, is the Marketplace Fairness Act a method of being "fair" or is it merely governing bodies looking to raise additional revenue from any source possible?

Enforcement of the Bill - The Marketplace Fairness Act is only implemented in those states that have simplified sales tax collection methods and only on businesses that have made more than one million dollars in the previous year. As it would be difficult to collect different sales taxes for different states and then pay all of those taxes to corresponding locations, it could drive online commerce business owners to close up shop in a sense. There needs to be a simplified method in order to accommodate all U.S. territories.

Competitive Arguments - One of the points to the benefits surrounding the MFA is that local retailers are at a disadvantage because online commerce businesses don't have to pay sales tax. In reality, this is a very speculative statement. Although some studies show that online buyers will spend less if the MFA goes into effect, the realistic view tells another story. What are some comparisons between eCommerce and brick-and-mortar locations that are not considered in most arguments?
  • Overhead Costs: The sheer overhead costs alone for eCommerce locations is significantly less than full-time, manned local establishments.
  • Shipping fees: Although the price per item may be significantly less due to operational costs, the shipping fees raise the overall spending.
  • Non-competing: Any retail location that is threatened by online sellers can compete online as well. The argument that eCommerce owners have an unfair advantage over brick-and-mortar locations is based on a market that refuses to compete.

Contradicting Fairness Arguments

Regardless of what side of the fence you're on, there are always contradicting arguments to support a biased opinion. Debating is good, unless you warp the facts to suit your own purposes. Omitting bits of information from facts is how conspiracies get started. In the real world, what contradicting arguments can be made against politicians for promoting "fairness in competition?"

Overhead Costs - There is a great deal of money that goes into managing a brick-and-mortar store. It is these costs that dictate how much a product has to sell for in order to maintain spending levels. In any given location, business owners pay for:

  • Rent
  • Electricity
  • Water
  • Phone services
  • Internet - which is optional
  • Advertising
  • Staffing
  • Insurance premiums - for location and staffing
  • Equipment maintenance

These are just the few mandatory costs that go into every successful local business. For a retail store, these bills are paid by the items that consumers purchase. It is this total expense that drives local retailers to charge more than the online counterparts. Online consumers don't visit eCommerce sites in order to circumvent paying sales tax. They do so because it is greatly cheaper to purchase the same goods from a remote location. Most eCommerce sites have less than half of the above costs to consider.

Shipping Fees - Unlike local retailers, eCommerce has to pay for shipping an item to a customer. Although this fee may be able to go into a different tax bracket at the end of the year, it's still an immediate cost that needs to be accounted for. While the online business may have a reduced product price because of overhead, the shipping totals raise the overall spending by the consumer. In most cases, shopping online is still cheaper than buying from a local retailer while including the shipping fees as a direct result from lower operational costs.

Non-competing - The most important aspect to realize when considering fairness towards brick-and-mortar locations is the refusal to compete with online retailers. Are online sales truly unfair to these physical stores if those businesses refuse to compete online themselves? In fact, it would be in the best interest to conduct online competition for it would increase your possible customer-base exponentially. The free and open market that the US is based on allows for that competition to take place. If you would rather not meet your competition online, then that is your choice to make and you have no right to argue that it's "unfair."

Like most bills that make their way into congress, there are opposing sides that demonstrate extreme measures to discredit the other. Unfortunately, a large portion of the public only believes what they are told and don't research facts for themselves. The MFA is a method to allow states to collect sales tax in order to drive additional revenue - pure and simple. There are too many variables that can contradict other theories and claims. However, is this such a bad thing? If the governing bodies had more money at their disposal, couldn't more get done in each state?

Myers is the founder of Longhorn Leads, LLC, a company that assists consumers in finding products and services on the major search engines.