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The Shipwire Blog/Online Sales Tax: Potential Aftermath

Online Sales Tax: Potential Aftermath

As you saw in Part 2 of this three-part series on the Marketplace Fairness Act (aka online sales tax), it is evident that the MFA will have significant consequences on both small and international businesses. The bill is still waiting to be passed by the US House, and if it passes, there are likely to be additional consequences to the new tax.

Consumer behavior
The immediate result to be studied once the MFA passes will be how it affects buyer behavior, since prices will rise. Increased prices will likely entice consumers to buy less online.

According to a survey conducted by Endicia, a leader in shipping technology, 75 percent of consumers between the ages of 18-25 will buy less online and more in stores. According to the same survey, 60 percent of US voters think the bill is bad for the economy.

The last thing our economy needs right now is lack of consumer confidence.

Tax evasion and piracy

From the retailers’ point of view, how will merchants react when faced with new pressures that could undermine their businesses? As with most laws, they can easily be broken or manipulated. Thus, by putting new pressures on businesses with taxation, there will undoubtedly be companies who use tax evasion strategies in order to help their businesses survive or to maximize their profits. Businesses could be encouraged to move to different states or take entire operations abroad.

In the world of digital goods where piracy is not something new, a sales tax will increase the likelihood of even more piracy.

Taxation domino effect
As more and more business practices and activities are brought into the digital realm, where will taxation end? It is projected that the MFA will lead to new taxes in other ecommerce related transactions, such as stock trades. In a sense, it is a “gateway” tax and could have implications on other digital activities.

According to the Securities Industry and Financial Markets Association, the MFA could lead to unexpected costs being passed on to consumers of financial services, including sales taxes on services or state-level stock transaction taxes.

Final thoughts
While the likelihood of the MFA being passed into law is quite strong, there is still a dash of hope for its opponents. Despite the bill being passed by the US Senate in early May, it is projected to be less popular in the House, which is usually opposed to new forms of taxation.

The question that lingers is this: is taxation the solution to “fair” business? The crux of the matter is that the brick-and-mortar business model is broken. Governments should support small businesses for the dual reasons of innovation and employment. A new tax will not bring about equilibrium in the retailing landscape and will most likely hurt small businesses. The MFA is only supporting an old business model that needs to be changed.

Don’t forget to check out Part 1 and Part 2 of our Marketplace Fairness Act series.

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