We’ve come to expect all kinds of theatrics during policy debates here in Washington. Now Amazon.com has taken to the stage with an act that’s all sleight-of-hand and misdirection, telling Congress that small businesses are the real problem when it comes to uncollected sales taxes on e-commerce.
Amazon wants Congress to force any small business with revenue of $150,000 to collect and file sales taxes for states where they have no presence whatsoever, claiming that, “a $150,000 exception would exempt 99% of online sellers from any collection responsibility on remote sales.”
To arrive at their 99 percent trick, Amazon counted even the most casual online seller as numerically equivalent to, well, Amazon.com. By this measure, you need only find 99 people who sold a baseball card through eBay or a dinner plate through Etsy as the statistical counterweight to every large seller like Amazon, Walmart.com, and Bestbuy.com.
A clever trick, especially since counting the number of sellers distracts attention from the uncollected dollars that state tax collectors are really going after.
According to a study by Eisenach-Litan, Amazon.com was responsible for two-thirds of all uncollected taxes from e-commerce last year.
The main reason Congress is considering a national mandate for online tax collection is to increase state tax revenue. But rather than having Congress follow the money to the largest sources of uncollected online taxes, Amazon’s report would have Congress chase down the long tail of small sellers, as seen in this chart based on a recent study by economists Robert Litan and Jeffrey Eisenach.
See, if you want to follow the money, look in the green part of the chart, not way out there on the long tail of tiny businesses. Litan and Eisenach found that the top 500 e-retailers account for over 90% of uncollected sales taxes on e-commerce in 2011. Amazon by itself, as the nation’s #1 e-retailer, represents two-thirds of all uncollected taxes from e-commerce (Amazon’s so big that their green bar rises way above the top of this chart).
To capture 93% of uncollected taxes (the green section of the chart), Congress need only require the top 500 sellers to collect for remote states. That would set the small business exception at $15 million in annual sales – a number that is one hundred times larger than Amazon’s $150,000 recommendation and fifteen times larger than the threshold in the Womack-Speier bill.
The worst part of Amazon’s misdirection play is how it would foist big burdens on small businesses. The big guys have entire accounting departments to help them collect and file for 46 states and 9,600 tax jurisdictions. Small businesses, on the other hand, run on razor-thin margins and a copy of QuickBooks.
A new tax collection burden would add yet another disadvantage to small business, who already pay higher rates for things like shipping, inventory, IT services, and health insurance. Congress recognized this disadvantage and twice proposed exempting small businesses from new requirements to collect remote sales tax.
As the curtain closes on Amazon’s act, the good news is that Congress need not pass any legislation at all. Instead, states can enforce current law that requires retailers to collect in every state where they have a physical presence. For example, Amazon is opening so many regional distribution centers that they will soon be collecting sales tax for over half the country — without any new legislation.
So let’s ignore Amazon’s sleight-of-hand and instead “follow the money” to the real source of uncollected taxes. We’ll see there’s no justification for imposing new burdens on small business by stepping on the long tail of e-retail.
 In 2010, Eisenach and Litan did an empirical analysis of states where the top 500 e-retailers already collected sales tax. We extrapolated those results to 2011, using the Internet Retailer list of top 500 e-retailers. We then divided the 2011 uncollected sales tax value for the top 500 e-retailers by the total uncollected sales taxes in 2011 from the Eisenach Study. This showed that 93% of total uncollected sales taxes in 2011 were from the top 500 e-retailers.