eBay and the small business exception

April 22, 2013

In an email Sunday to 40 million eBay users, eBay CEO John Donahoe urged them to oppose the Marketplace Fairness Act unless the small business exception, which exempts online retailers with less than $1 million in out-of-state sales from collecting sales tax, is raised to $10 million or 50 employees.

We’re all for making sure small online businesses don’t have to spend time or money dealing with sales tax (that’s why we created TaxCloud in the first place), but here are three reasons that raising the exemption threshold doesn’t make sense:

1. At the $1 million threshold, most online retailers are already exempt. Nationwide, fewer than 1000 online retailers* have more than $1 million in total sales. (If we consider only out-of-state sales, that figure is even lower.)

2. Collecting sales tax doesn’t require the resources of a large company. The Marketplace Fairness Act requires states to provide free sales tax software and services for online retailers, so online businesses wouldn’t need to spend anything to comply with the bill.

3. Most small online retailers already use e-commerce platforms, which can easily provide add-ons that handle sales tax, just as they provide for shipping—making sales tax collection easy for all their retailers at once. And we’d lay odds that once states can require online businesses to collect sales tax, that’s exactly what they’ll do.

By exempting online retailers with less than $1 million in out-of-state sales, the small business exception already does what it was designed to do: ensure that small online businesses are not burdened by online sales tax collection. But raising the exemption threshold to $10 million or 50 employees would be a mistake.

*According to Internet Retailer‘s Second 500 Guide, only the top 980 online retailers in the nation had over $1 million in sales in 2011.


Same everything, except tax treatment (2)

October 31, 2012

 

Sales tax shown is based on delivery to a Connecticut address. Connecticut sales tax rates are among the lowest in the nation.


TaxCloud in the news!

October 11, 2012

TaxCloudWe’re happy to report that TaxCloud and FedTax have been in the news quite a bit lately.

An end to the free online tax ride nears: In this ComputerWorld article, TaxCloud user Ken Knezek, owner of Bandals Southwest, talks about how his small company has handled online sales tax

What the end of tax-free online shopping means for small businesses: Our CEO, R. David L. Campbell, was interviewed for this Reuters article on how small businesses will be affected by online sales tax

How you can prepare to collect online sales tax: And in an article in Independent Retailer, David offers some tips for online retailers who are thinking about starting to collect sales tax

It’s great to see so much attention being paid to the practicalities of what online sales tax really means for online retailers. As we move closer to federal legislation on the issue, we hope to see more articles like these!


US online retail continues 17% to 20% year-over-year growth!

May 11, 2012

Today turned out to be an unusually interesting day for three reasons.

First, the U.S. Census Bureau released its latest E-Stats Report for FYE 2010 today, which revealed that online retail reached $169 billion for all of 2010. The Census Bureau data point does not include online auctions or marketplaces. If you add in eBay’s 2010 U.S. Gross Merchandise Volume (GMV) of $20.4 billion, total online retail could be estimated at approximately $190 billion for FYE 2010. The E-Stats Report also includes preliminary estimates for online retail in 2011 of approximately $194.3 billion. Once again, if you add eBay’s 2011 GMV of $22.8 billion, total online retail could be estimated at approximately $217 billion for FYE 2011.

Second, today comScore released Q1 online retail statistics, which say that online spending in the U.S. reached $44.3 billion (excluding auctions), an increase of 17% over last year. Interestingly, comScore will be hosting a free webinar to review their data in detail—including recent trends toward “showrooming” (in which a buyer goes to a bricks-and-mortar store to compare different items, then leaves the store and purchases online to avoid sales tax).

Finally, today Internet Retailer released their annual Top 500 Guide. As usual, Amazon tops the list with $48 billion in sales.

An interesting data point in the annual ranking includes the dramatic range in revenue from the top of the list to the bottom. At number 500 is Summit Sports with just under $15 million (0.00024% of eBay’s sales volume).

We have always thought it notable that eBay is not included in this list. We understand that as a marketplace operator, they are not the direct retailer; rather, they aggregate millions of sellers under one roof. However, if eBay were included on the list, based upon only their marketplace and GSI business units (excluding PayPal), they would beat even Amazon with $62 billion in GMV in 2011 (worldwide).

Here’s an interesting observation about the census and Internet Retailer data. The total online commerce represented in the Top 500 list—which, you’ll remember, ends with a retailer that had just under $15 million in sales in 2011—was $150 billion in 2010. However, the census data reports $190 billion for 2010. That year, the retailer at the bottom of the Top 500 list was MagnetStreet with $11 million. Since the census figure includes all retailers while the Top 500 figure includes only retailers with more than $11 million in annual sales in 2011, we now know how much businesses with less than $11 million in annual sales generated together in 2010.

In other words, because it didn’t count businesses with less than $11 million in annual sales in 2010, the Top 500 list only accounted for $150 billion in total ecommerce sales in 2010 instead of $190 billion.

That’s $40 billion in ecommerce being transacted by merchants with less than $11 million in annual sales! It’s also important to remember that the IR Top 500 Guide is not restricted to US sales but includes all sales worldwide. So there could be considerably more than $40 billion in ecommerce that’s still under the radar.

There are a lot of conclusions that could be drawn from this, but we’ll save those discussions for another post at a later date.


E-commerce sales growing every quarter, at highest level in Q2 2011

August 19, 2011

According to an Internet Retailer article on newly released U.S. Commerce Department figures for the second quarter, e-commerce sales are up 17.5% from a year ago and are at the highest level ever—4.6% of all retail sales:

U.S. e-commerce sales totaled $47.51 billion during the second quarter, up 17.5% from $40.42 billion a year ago, according to seasonally adjusted estimates released today by the U.S. Commerce Department.

E-commerce accounted for approximately 4.6% of total retail sales during the second quarter, its highest level on record, the Commerce Department says. Total adjusted retail sales during the second quarter reached $1.04 trillion, according to today’s report. E-commerce accounted for 4.5% of total retail sales during the first quarter of 2011, and 4.2% of total retail sales during the second quarter of 2010, the Commerce Department says.

Interestingly, Internet Retailer found a discrepancy in the Commerce Department report:

When excluding sales in categories not commonly bought online—automobiles, fuel, grocery and restaurant meals—Internet Retailer calculates that e-commerce accounted for 8.4% of total retail sales during the quarter, up from 7.3% a year ago. This calculation is based on Q2 retail sales totals the Commerce Department released last week; that report put total adjusted retail sales for Q2 at $1.16 trillion, higher than the retail total released today.  The Commerce Department did not immediately respond to a request for explanation about the difference.

A comparison between the change in online sales and change in bricks-and-mortar sales is particularly stark at Saks:

“We are approaching the fall season a bit more cautiously and will continue to be very strategic with our expense, capital and inventory spending,” says Stephen Sadove, CEO of Saks Inc., where online sales were up 50% during the second quarter from a year ago, and bricks-and-mortar comparable store sales were up 15.5%. (emphasis added)

Those are incredible figures: Q2 online sales at Saks were up 50% from a year ago, while bricks-and-mortar store sales were up only 15.5%.

Those statistics make it easy to understand why so many Main Street retailers are concerned about online sales. While Saks has an online store, the local bike store probably doesn’t, and it’s likely to lose many of its sales to online retailers.

Online retailers should be required to play by the same rules as Main Street retailers. When exempting online retailers from collecting sales tax gives them a perceived 10% price advantage, how can any Main Street retailer compete?


Census figures point to new estimates for 2011 e-commerce

May 24, 2011
US Census Bureau: New E-Stats

US Census Bureau: New E-Stats

The Census Bureau released new retail figures last week, including figures for e-commerce sales in the first quarter of 2011.

We did a little math to figure out, based on those first-quarter figures, how much we can expect in e-commerce sales for this entire year. We averaged the ratios of first-quarter e-commerce sales to total e-commerce sales for 2009 and 2010, which gave us a figure of 4.24—in other words, the total e-commerce sales for the past two years have averaged about 4.24 times as much as the first-quarter sales.

Previous Two Years E-Commerce Retail Sales (in Millions)
2009 Q1 2009 FYE ’09 FYE/Q1 2010 Q1 2010 FYE ’10 FYE/Q1 Avg. Ratio
$34,151 $144,462 4.23 $39,159 $166,529 4.25 4.24

Using that ratio for 2011, we multiplied the first quarter e-commerce sales figure of $46 billion by 4.24 to get just over $195 billion. We should point out this figure does not include sales from online auctions, mail-order catalogs, telephone orders, or TV shopping networks.

Now for the most interesting part: how much sales tax (or use tax) due will actually be collected/remitted?

At the current average sales tax rate of 6.85% percent, the total sales tax due on $195 billion is approximately $13.5 billion. However, according to California’s Board of Equalization, typically only four-tenths of one percent (0.04%) of the tax due on e-commerce sales is collected. Which means that (drum roll, please). . .

Although about $13.5 billion will be due, the states can expect only $53 million in revenue, unless Congress takes action by enacting the Main Street Fairness Act. With our states in such dire fiscal condition, we hope Congress will allow states to simply collect the tax that is due, instead of raising taxes.


Online and Mail-Order Shopping surges almost 16% in December

January 15, 2011

Yesterday (January 14) the U.S. Census Bureau released advanced estimates for December 2010 retail sales. As we first reported one month ago early indicators at that time were that online and mail-order shopping were expected to experience over 13% growth of 2009 results. Now with data in for December, the picture looks even brighter (for online retailers), indicating 15.7% growth over 2009 data (closely matching Cyber Monday’s 16% growth over 2009 recently reported by by comScore).

The Census Bureau report estimated sales activity for the entire Nonstore segment  (NAICS code 454) at almost $362 billion. This Nonstore segment includes Electronic Shopping and Mail-Order Houses NAICS: 4541, Vending Machine Operators NAICS: 4542, and Direct Selling Establishments NAICS: 4543. Over the last few years, the Electronic Shopping and Mail-Order sub-group accounts for approximately 75% of the combined category, suggesting almost $272 billion in online sales.

For a sense of scale, here is a breakdown by retail sector:

Retail Sector Total 2010
Growth
Total 2010 Total 2009 Dec. 2010
Growth
Dec. 2010 Dec. 2009
Furniture & Home 2.3% $ 91,544 $ 89,485 2.2% $ 9,184 $ 8,986
Electronics & Appliance 2.6% $ 102,699 $ 100,096 1.5% $ 13,441 $ 13,252
Home & Garden 6.3% $ 288,387 $ 271,295 12% $ 22,658 $ 20,228
Health & Personal care 3.8% $ 264,192 $ 254,520 7.2% $ 25,539 $ 23,820
Clothing & Accessories 5.1% $ 219,251 $ 199,097 8.4% $ 30,314 $ 27,955
Sports/Hobbies/Books 5.4% $ 88,154 $ 83,637 8.1% $ 12,725 $ 11,762
General & Department 3% $ 610,704 $ 592,916 3.4% $ 72,887 $ 70,475
Online & Mail-order 13.5% $ 271,373 $ 233,942 15.7% $ 34,519 $ 29,826

This table is interesting for several reasons:

  1. December was much stronger economically than the rest of the year (particularly for Home/Garden and Health/Personal).
  2. Online Retailers are far away the most rapidly growing retail sector
  3. We suspect quite a few1 of the online & mail-order transaction did not collect sales tax at the time of the transaction, even though the consumer(s) are still expected to voluntarily report and remit those sales taxes (as “Use tax”). With so many states in such deep fiscal crisis, expect the 112th Congress to finally address this issue.

As always, we welcome your thoughts!

1 “five-sixths of e-commerce sales are not taxable [at the time of the transaction] under current statutes.” University of Tennessee 2009 E-Commerce Study, Page 8