After SD v. Wayfair, Congress should not pick winners or losers in retail business models

Some members of Congress are contemplating a sales tax bill that highly favors certain retail business models over others. That should never happen. These elected officials could benefit by adopting one of the pillars of the Hippocratic Oath: First, do no harm.

In June, the Supreme Court in South Dakota v. Wayfair, overturned more than 25 years of legal precedent cleared the way for states to require out-of-state sellers to collect in-state sales tax when selling to residents in that state.

{mosads}The decision left internet retailers scrambling to implement complex and costly tax-collection software to comply with the sales tax laws of the 45 states that impose these taxes. For the most part, large retailers, have managed the transition well because they can bear those costs; however, smaller internet direct-sale retailers have not fared as well because they lack the means to bear those costs, and therefore are faced with a choice between large state fines and lawsuits or discontinuing their business altogether.

The proposed fix calls upon Congress to establish a small seller exemption, limiting the application of Wayfair only to those larger businesses, which can bear the steep implementation costs. For the most part, this makes sense; however, one form of fix under discussion makes no sense and would do serious harm to many internet and brick and mortar retailers. In fact, it could tilt the entire retail playing field towards a couple of huge marketplace platforms: eBay, Etsy and Amazon’s marketplace.

The costs of implementation are not a problem for eBay, Etsy and Amazon. These large, marketplace platforms already have nationwide tax-collection software in place because sellers which sell on their marketplace platforms must collect taxes in their own states. So, small sellers selling on the eBay, Etsy and Amazon marketplaces do not face the same challenges as other small, direct-sellers who sell only on their own websites.

What eBay and Etsy are lobbying for is a small seller sales tax exemption for marketplace small sellers who could easily, and relatively cost-free, collect sales taxes through the eBay, Etsy and Amazon marketplaces. They want a huge marketplace advantage for their retail model. Unavoidably, such a marketplace small-seller exemption will harm retail commerce nationwide.

Competing non-marketplace online retailers would clearly be the losers, as their suppliers start migrating to the eBay, Etsy and Amazonmarketplaces to benefit from the attractant of marketplace tax-free sales. Traditional brick and mortar retailers would likewise see losses in sales owing to supplier marketplace migration. And the states would be the biggest losers of all as they are denied the uncollected state sales tax revenues they had fought so hard to win in Wayfair.

As Congress diagnoses Wayfair fixes and mends, it would do well to adopt the physician’s maxim to “First, do no harm.” Congress should say “No!” to marketplace platform special interests seeking the self-benefit of a special and needless exemption from compliance with this change in our national tax law.    

Jonathan E. Johnson III is a member of Overstock.com’s board of directors, and formerly served as president of the online retailer.