Tax Day 2010 - Interview with Brian Bieron on Internet Sales Tax

April 15, 2010

Today is Tax Day 2010.  We thought it would be the perfect day to get an update on the Internet sales tax issue from eBay\'s Brian Bieron, Senior Director, Federal Government Relations and Global Public Policy.  Below is the transcript of that interview:

1) Please give us a brief synopsis of the Internet sales tax issue.

The issue involves the expansion of sales tax collection to require out-of-state retailers to collect sales taxes for the states and local governments where their customers live. This issue pre-dates the Internet,stretching back to a debate about catalogue and mail-order businesses, as well as phone and cable-based direct marketing retail. The fight was largely framed by a key 1992 Supreme Court case - the Quill decision - which established the law of the land. A state can require a retail business to collect and remit sales taxes if the business has a physical presence in the state. States cannot require "remote" businesses - businesses that are based out of state - to collect and remit taxes.

Cut ahead to the Internet. The emergence of the Internet and ecommerce created a new impetus to the drive to expand the duties of remote retailers, in this case Internet-based businesses, to collect and remit sales taxes. The argument has been two-fold from the beginning. One argument is that ecommerce will grow and grow and grow, and that if there is no sales tax for those sales then states and localities will lose very important tax revenue and critical government services will suffer. Second, store-based retailers face unfair competition from Internet-based retailers because sales taxes are collected in the stores and not online, so shoppers will buy online to avoid the taxes.

2) What is eBay\'s stance on Internet sales taxes, especially related to small businesses?

eBay\'s position has been quite consistent. Our view has been that small retailers will be uniquely harmed by the burdens associated with collecting sales taxes for all 45 states that require it. These states have over 15,000 different sales tax jurisdictions and collecting sales taxes is very complicated. It is not just about calculating the appropriate tax for every product and every transaction, but involves collecting and remitting the taxes, then keeping all the records because any of the states can audit a retailer. This is a major burden for a small retailer which is using the Internet to compete with retail giants. The taxes will raise the cost of the products to the consumer and the complexity will raise the tax compliance costs of the small business. As such, it will be a backbreaker for some small business retailers. eBay has strongly advocated for a clear small business exemption from any new sales tax plan. Ironically, while the main arguments have largely stayed the same, it\'s the world of retail that has evolved over the past decade of the sales tax debate. First, the Internet is now part of the retail business model for nearly all retailers, large and small. Just as importantly, many of the largest Internet retailers in 2010 are also giant store networks. In fact, 15 of the Top 20 U.S. Internet retailers in 2009 were Web sites linked to such stores (think Target and BestBuy). This matters because those businesses all collect sales taxes online because they want to link their stores and Web sites into single, seamless businesses. They do that voluntarily, and that comes with a tax collection obligation. Unfortunately, these giant retailers recognize that by requiring small businesses that don\'t have stores in every community to face the same tax burden they will hurt their competition.

In addition, as more sales taxes are collected by giant retailers online, the "lost" tax revenues are much lower than the estimates of the sales tax advocates. These revenue loss estimates were always blown way out of proportion, but sober estimates show that it will represent a very small fraction of all sales taxes. In fact, a recent study estimated uncollected sales tax on e-commerce in 2008 was $3.9 billion - less than three-tenths of one percent of all state and local tax revenues combined.

3) How are lawmakers and policymakers approaching this issue?

Fortunately, the effort to expand sales taxes on the Internet has not gained much traction in recent years. However, the calls have become more strident with the economic downturn which has negatively impacted state and local tax revenues. Many states were arguing they needed Internet sales tax revenues three and four years ago when state tax revenues were at record highs. You can only imagine how much they say they need the revenue when their budgets are in the red. However, many federal lawmakers appear to recognize the negative effects of a tax increase during a time of slow economic growth. Congress recognizes the importance of small business to job creation and economic growth, so we hope they will not support the unfair and anti-small business effort being pushed by giant retailers.

4) What was the most-important development in the last year and how did eBay respond?

The biggest challenge of the past year involved the fiscal problems facing the states due to the economic downturn. eBay\'s response in Washington, D.C., was two-fold. First, there was a redoubled effort to make sure that federal policymakers are aware of the fact that small business retailers are using the Internet to compete, survive and create jobs. Therefore, don\'t impose a new tax burden on those small businesses because it will hurt the economy and job creation. Second, we have been working hard to educate policymakers on the realities of Internet retail, which include the fact that much of the online marketplace is comprised of giant retailers who combine their stores and Web sites. These retailers collect sales taxes because they have the local presence, which brings in valuable revenue to the states. At the same time, they gain the value of combining stores and a Web presence into a new kind of service to consumers, making it unfair to force the same tax collection on small retailers who don\'t have the same national network of brick and mortar locations.

5) What do you see happening in the year ahead?

We see some states continuing to press Congress for legislation to increase sales taxes on the Internet. We suspect that one giant Internet retailer in particular will continue to lobby to try to make sure that if there is any increase in sales tax collection on the Internet that the burden falls on the smallest retailers - like the small business selling on marketplaces like eBay. In response, the eBay Government Relations Team will continue to do everything possible to keep new tax burdens from being placed on our eBay sellers.

For more information, read our Streamlined Sales Tax policy paper.