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eMainStreet Alliance Stands Against MFA: Passed Bill May Result in Bankruptcy

In May of 2013, the Senate passed the Marketplace Fairness Act (MFA) coercing online businesses to collect and forward sales tax to inaccessible states. The bill is now in the hands of the House Judiciary Committee, which is overseen by Representative Bob Goodlatte (R-VA 6th District). Online Stores, Inc. is part of eMainStreet Alliance, which was co-founded by Drex Davis. This alliance is a group of more than 300 online retailers who have united together to help lawmakers understand how detrimental MFA is. A recent letter was sent to the House Judiciary Committee emphasizing the costs of implementation for each organization. At OLS, the estimated cost of compliance will be $360,000 on sales of $30million during the first year.

On the topic of expenses, Gary Shapiro, the Head of the Consumer Electronics Association and supporter of MFA stated that decrypting, gathering, and paying taxes to 10,000 jurisdictions will be “relatively simple.” Online Retailers beg to differ by contrasting that each jurisdiction has its own laws for sales tax to all sorts of goods from food to non-prescription drugs. In addition, within the same zip code different tax rates can apply. Software systems would cost thousands of dollars with expensive updates every time a jurisdiction changes a tax code. Then, each online retailer will have to categorize their products in order to be decipherable by the software, which leaves small business owners to become specialists on every tax law in 46 sales-tax states. This is practically unmanageable.

If the House passes the Marketplace Fairness Act, audits will launch. The MFA bill will increase audits risk by at least 4500%. As many as 46 states are able to audit our business. This is frightening to OLS as well as the other 300+ online retailers.  Unfortunately, unlike big retailers like Wal-Mart, small businesses do not have mass accountants and tax attorneys to deal with exorbitant and laborious audits from every state. There are extreme penalties for disobedience to sales tax, including: repossession of personal possessions in order to collect unpaid sales tax owed by our businesses. That means auditors can seize homes and empty personal bank accounts if they conclude that an error has been made. Just ONE mistake could potentially put OLS, as well as other small online businesses, into bankruptcy. Big box retailers see the MFA as a way to put online mom and pop stores out of business – Congress please stand with small businesses and reconsider the MFA bill!

For more information, please view Kevin Hickey’s (CEO of OLS) presentation that was given at the IRCE Convention: IRCE Presentation

See also: The Cost of Complying with The Marketplace Fairness Act

The Effect of the Looming Marketplace Fairness Act on OLS

The vote on raising taxes for online retailers and their consumers is getting closer. The Senate is planning to vote on Internet sales taxes some time in May to determine if online retailers will be responsible for collecting sales tax for out-of-state consumers (see also: The Great Online Sales Tax Debate). Should this bill come to pass, Internet retailers that do NOT meet the Small Seller Exemption (less than $1,000,000 of total remote sales) will have only 90 days to begin implementation (source: http://www.marketplacefairness.org/compliance/). So how will this effect Online Stores, Inc.?

Online Stores, Inc. is an online retailer with sales of $30m a year. We have studied the Marketplace Fairness Act and estimated our cost of implementation and compliance. We have used these estimates to extrapolate the costs for the industry. Here are our conclusions (see below for link to calculations on how we came to these conclusions):

$4.9 billion in additional sales tax will be collected for the states

Of this, $3 billion is from companies larger than $50m in sales. Our estimate is lower than other estimates as they do not consider the high percentage of eCommerce revenue which is through retailers with “brick and mortar” operations like Walmart, Target, Best Buy etc., who are already collecting sales taxes. Other estimates also do not consider that a significant percentage of “retail” eCommerce transactions are purchases by businesses, where tax is paid as Use tax, and many retail eCommerce sales are vehicles, where taxes are collected through the vehicle registration process.

$2.4 billion cost of collection in year one ($1.2 billion year two)

Year one costs include setup of systems and software to calculate and collect the taxes, management time to understand the complex sales tax laws of 40+ states, and classification of products into tax categories for different states. For companies under $10m in sales, the cost of collection in year one is 40% greater than the tax collected, in year two it is 70% of the tax collected. Most companies over $100m are already collecting (Walmart, Best Buy, etc.).

228,000 jobs are lost as a result

Online retailing is very competitive, driven by the market leader Amazon which is running at only 1% net profit. Companies are investing in website technology to support shopping on mobile phones, compliance with credit card security rules, faster delivery and better customer service. The compliance cost in year one 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 many smaller companies and even some larger companies the Marketplace Fairness Act will be the straw that breaks the camel’s back. We estimate 9,600 companies will fail, including almost 30% of companies under $10m in sales. The estimate does not include loss of employment at suppliers, shipping companies and service providers such as accountants and software developers.

$8.16 billion lost wages, $3.4 billion lost in federal and state income taxes year one

As a result of 228,000 lost jobs, $8.16 billion in payroll will be lost, plus $2.45 billion in federal and state income taxes. The $2.4 billion in collection costs reduce profits by a similar amount resulting in a reduction in Federal and State taxes of $1 billion. The net collection of additional tax across State and Federal government is only $1.45 billion.

90 days to notice to start collecting will cause chaos

Many companies will be forced to use a single supplier, Avalara, due to technical issues. One company is unlikely to be able to bring over 20,000 new customers online in such a short amount of time. Yahoo Store shopping cart is the most widely used software by small retailers. It is not designed to collect sales tax for all states and is not integrated yet with Avalara. Many retailers will be forced to switch shopping carts in a very short period of time to be able to collect the taxes, go out of business, or not collect the taxes and risk fines and penalties. We suggest a 12 months’ notice period.

The proposed law impacts manufacturers, not just online retailers

Manufacturing companies often have very profitable direct eCommerce operations selling products and spare parts directly to consumers and wholesale customers. These companies will need to comply with the law and put into place systems to collect tax, or stop selling directly. This increases the number of companies that will have to collect the tax significantly.

Our suggestions:

Exemption should be $100m

Introduce the bill, but make it apply to companies with more than $100m in retail sales, and with at least 12 months’ notice. These companies can mostly collect the tax and only a few will be seriously impacted.

Collect sales tax on Amazon and eBay

We suggest the marketplaces with over $100m in sales (Amazon marketplace, eBay, etc.)  be required to collect and pay the sales taxes on behalf of all sellers on those marketplaces. This will collect a large amount of tax revenue at minimal cost to the sellers, as Amazon and eBay will do the paperwork and pay the taxes to the states. The states will also not have to deal with 10,000 taxpayers, just two, which will be much easier for them.

Online Stores, Inc.  has forwarded these concerns and suggestions to members of the Senate in hopes they will understand the effect this bill will have on smaller online retailers.

marketplace fairness act calculations 1

ASD Trade Show a Success for Online Stores

TradeShowBannerFlagsThe 2013 ASD Trade Show held in Las Vegas, Nevada proved to be a successful trip for the Online Stores, Inc. sales team.

The trade show was held at the Las Vegas Convention Center from March 17-20 and brought together thousands of  merchandisers to this extreme wholesale buying event.

As stated by the ASD Trade Show website:

“ASD brings the world’s widest variety of merchandise together in one efficient consumer-goods trade show that’s as easy to shop as it is to love. This retail trade show is loaded with quality choices at every price point, this well established trade show continues to grow, attracting tens of thousands of loyal attendees from every retail and distribution channel including retailers, distributors and importers who come here to discover new suppliers, new product categories – and new ways to profit.”

Cropped IMG_2294Online Stores was able to be a part of this show, and had the opportunity to meet with several buyers from a number of different  independent and chain accounts. Online Stores represented each of their stores, with the United States Flag Store being a huge hit among the crowd. Michael Hunt, Sales Manager, and Ryan Alcorn, Sales Representative, successfully converted many customers from our competition because of the fast and friendly service, quick follow up, and most of all, the great pricing that OLS offers.  Along with writing orders at the show, many of the new customers are awaiting quotes so they can place their orders.

“Many of the new customers were excited because they can now consolidate some of their vendors into one, since the US Flag Store is basically a one-stop shop,” said Michael.

This year there were approximately 45,000 attendees and 2,400 exhibitors.

Employee of the Month – February 2013

ImageRepresenting the warehouse for February is Lou Yex. Lou is currently a warehouse clerk and has been with Online Stores since September 2007. He is responsible for receiving products in the warehouse and stocking the shelves to be picked and sent off to our customers. Organization is key for a role such as this, as each product received has a specific location and must be kept track of to ensure we have enough of that particular product in stock to sell.

Before coming to OLS, Lou worked for Surewood Forest Products for ten years before the company closed. His previous supervisor at Surewood Forest Products referred Lou to OLS and the rest is, as they say, history.

Outside of work, Lou is a bit of an outdoorsman. He enjoys spending some of his free time hunting and fishing, and doing yard work.  If he’s not catching game, he likes to spend time reading nonfiction books, especially about the Civil War, World War II and Vietnam. He’s also one to visit the occasional yard sale and flea market.

Thanks for all the hard work that you do, Lou!

January Employee Highlight – 2013

Laura Hall joined the Online Stores family in 2008 after a company she worked for closed. Laura has worked in a variety of roles, making an impact in each, and continues to be an integral part of the Customer Service  Department.

Prior to working at Online Stores, Laura, worked for RTI which was a donation call center, making outbound calls, much like that of a telemarketer. She worked at this company along side fellow supervisor, Marcia  Miller, for a period of five years up until the company closed its doors for good. At RTI, Laura, was responsible for monitoring outbound calls made by other reps to the potential donors, for quality assurance purposes.

Once RTI closed, Laura came to Online Stores and joined the customer service department in 2008. Laura was first hired on as a Customer Service Representative and worked in this position for a little under a year before  being promoted to a Customer Service Supervisor. Once the CS2 division was added, Laura supervised the outbound aspect of the department for several years before being promoted to the Merchandising Manager. Laura  worked as the manager for about a year before taking her skills back to customer service, and helping them continue improving and moving towards the next level. More recently, Laura has also began supervising the custom aspect of  customer service.

When Laura is not working she enjoys spending time with her husband and daughter. They love to shop, especially for great deals on eBay. Laura has bought several of her vehicles on eBay! Thanks, Laura!