Internet sales tax bad for business

If you're an online shopaholic, you'll be mighty upset to find out that a U.S.
Written by Eileen Yu, Senior Contributing Editor

If you're an online shopaholic, you'll be mighty upset to find out that a U.S. Senate bill has been introduced to discuss whether shoppers should be made to pay sales taxes when they make purchases online.

The legislation would allow U.S. states to compel e-retailers such as online bigwigs Amazon.com and eBay to collect sales taxes from their customers.

While this bill, if passed, would apply only to American shoppers, online shopping is borderless. In fact, one of the main advantages of e-commerce is that it is unfettered by geographic and physical boundaries, allowing any small home business to reach out to customers as far out as Tabatinga or Timbuktu--well, as long as they have an Internet connection, that is.

If the likes of Amazon.com and eBay begin collecting sales taxes, as instructed by their government, will consumers from outside the U.S. be exempted? Will there be schemes similar to a GST (goods and services tax) or sales tax refund for tourists? Even then, the onus is on the foreigner to file and submit an application for a tax refund, usually done at the airport. How will this translate in the cyber world?

It's probably easy enough for Amazon.com to automate the process in the backend, tweaking its system such that sales taxes will be omitted from orders with shipping addresses outside the United States. But these are details that will need to be ironed out, if the legislation is approved.

And eBay is ramping up its efforts to ensure it doesn't get approved. According to a CNET News report, the auction site is speaking to a congressional panel and highlighting why the sales tax would consolidate the market power of Amazon.com and put small sellers out of business.

The company's deputy general counsel, Tod Cohen, said online retailers that generate less than US$10 million in sales have seen their e-commerce share dip from 31 percent in 2008 to just 19 percent last year. "It is the largest retailers that are growing. And not surprisingly, those giant retailers are lined up united in proposing a change in remote sales tax law," Cohen is reportedly planning to tell a U.S. House of Representatives committee.

E-commerce has long been touted to level the playing field, offering a great opportunity for small and midsize businesses to reach out and grab new customers locally and globally. If the U.S. government approves the online sales tax, it will be bad news for not only small businesses, but consumers who wouldn't be buying from these merchants if not for the Internet.

It will be worse news if Asian governments catch on and start pondering their own Internet sales tax...more so if this is extended to mobile commerce.

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