FOR IMMEDIATE RELEASE May 1, 2013
Marketplace Fairness Act May Cost Over 200,000 Jobs
Online Stores, Inc. calculates how the new Marketplace Fairness Act will impact small eCommerce businesses.
New Stanton, PA—With the Marketplace Fairness Act passing through the Senate, Online Stores, Inc. has determined its cost of compliance with the sales tax laws of all 50 states and the likely impact on other small online retailers. If this bill passes Congress and become law, we estimate our cost of compliance will be $360,000 on sales of $30m in the first year. This amount is greater than our average net profit over the last 3 years. We estimate the net additional sales tax revenue we’ll collect,will be less than our cost of compliance. We believe the impact of this law on small to mid-sized retailers will result in the closure of over 9,000 companies with the loss of 200,000 jobs.
Online retailing is a very competitive business and net profit margins are typically low in the -4% to +5% range, driven by the market leader, Amazon, which is running at only 1% net profit. Companies are investing in website technology to support mobile commerce, compliance with credit card security rules, faster delivers and better customer service. The compliance cost in the first year of implementation of the Marketplace Fairness Act, according to Online Stores, Inc.’s calculations, will be greater than the average level of profitability for companies under $10 to $20m. It also adds a very significant burden to management, taking time and resources away from competing against larger competitors. For smaller companies, and even some larger companies, The Marketplace Fairness Act will cause chaos. We estimate that approximately 9,600 companies will fail, including almost 30% of companies under $10m in sales. That equates to 228,000 lost jobs in at online retailers, catalog companies and any company that operates a retail website. The estimate does not include loss of employment at suppliers, shipping companies and service providers, such as accountants and software developers.
“We think this is an undue burden on smaller Internet retail businesses.” said Kevin Hickey, CEO of Online Stores, Inc. “State sales tax is very complicated, for example there are over 140 conflicting and overlapping codes for clothing and footwear alone. Knowing which items are taxable and at which rates often goes to “case law” based on sale tax appeals and can change at any time for any state. In addition, shipping charges may be taxable, non-taxable, taxable based on order value, amount of handling fees added, percentage of taxable items ordered or which shipping method is selected to quote just a few examples from different states!
If we get the classification of a product wrong and we do not charge sales tax correctly, the states have Draconian power to make us pay all the uncollected taxes with penalties and interest, in some situations making the company directors personally liable
This law will be a major burden for a large number of companies, and will be a major impediment to new company formation. Who wants to start a business and file sales tax forms for 45 states from day 1?”
Online Stores estimates that Avalara, the market leader in sales tax calculations, will need to bring over 20,000 new customers online to collect sales tax in 30 to 60 days to support the 90 days advance notice period proposed. Many small Internet retailers are using the Yahoo Store shopping cart, which isn’t designed to collect sales tax for all states or to link to sales tax software such as Avalara. These companies will be forced to switch to a compatible shopping cart in a very short time frame, or risk being penalized for not collecting, or worse, go out of business.
Online Stores suggests exempting businesses with sales under $50m, since the tax revenue collected will be less than the cost of compliance. In addition companies should be allowed at least 12 months’ to comply with the sales tax collection requirements.
About Online Stores, Inc.
Online Stores Inc. is an eCommerce company based in New Stanton, Pennsylvania, with 2012 sales of $30 million. The company was founded in 2002 and operates five stores: United States Flag Store http://www.united-states-flag.com, English Tea Store http://www.englishteastore.com, Discount Safety Gear Store http://www.discountsafetygear.com, Safety Girl Store http://www.safetygirl.com, and Construction Gear Store http://www.constructiongear.com. The company is privately owned and employs approximately 80 people.
For further information contact
Online Stores Inc.
724-925-5627 or 724 493 9212
Reuters ran the above press release: http://www.reuters.com/article/2013/05/06/onlinestores-fairness-idUSnPNPH07546+1e0+PRN20130506