That's rich coming from a company that charges 13% commission on sales (10% flat final value fee if you don't rent a 'store' by the month, plus 2.9% Paypal transfer fee, plus sundry other minor fees like the fixed 30c per paypal transaction, insertion fees etc.).
With no real competition that's more or less standard operating procedure (price/demand curve?) in many businesses until the customer says "uncle".
By the way sellers (I'm sure you realize this and just made a mistake) of course don't pay sales tax buyers do of course even if sellers paid it would be passed along to buyers.
I'm not really strong in micro, but it seems logical that all 3 parties would pay some share, with the highest share being paid by the seller through reduced demand.
Also, has anyone created a sales tax management company? That seems like it would reduce the burden significantly on small businesses.
You are right. Whether buyers, sellers, or eBay pay the tax is a function of the price sensitivity (elasticity) of the varying group. See:
http://en.wikipedia.org/wiki/Tax_incidence
This is a little different from the standard model because eBay is a third party.
Taxes are not automatically passed long to buyers, even though buyers always pay them. If the seller's profit is reduced, then part of the tax is effectively being paid by the seller. I know this is slightly counter-intuitive, but it makes sense in terms of price theory. Elasticity of demand is what determines who pays the tax - the more inelastic the demand, the more the tax burden falls on the buyer.
Let's take an example, albeit a simplified one. Suppose gasoline costs $5/gallon including a 25% tax on a retail value of $4 ($1), and that the profit of the gasoline manufacturers is also $1 (we're assuming vertical markets and perfect competition as well as round numbers, for simplicity). Consumers need gas to go to work and run errands, so although higher gas prices might result in some fewer road trips and pleasure excursions, overall gas consumption won't change too much in response to price swings. Now, the government decides to increase the tax to 50%, so the price at the pump goes up to $6. Consumers will grumble but they'll still need to buy gas, so they pay 20% more but the sellers still make $1/gallon profit as before. Why? because it's hard to substitute away from gasoline or change your usage patterns overnight, so if you need to go from A to B in your car you're just going to have to buy the more expensive gas. Shit.
Now contrast the market for gourmet cupcakes, which have lately been in fashion. Let's assume a cupcake also costs $5, and yields $1 in tax revenue (25% on $4). Because baking cupcakes is a bit more labor-intensive than gasoline production, let's say the baker's profit is $2 (which is not so far from the truth, and which helps to explain why there are so many gourmet cupcake companies lately). Now suppose Mayor Bloomberg disapproves of cupcakes because they have too much sugar and raises the tax on them to 50% ($1 -> $2), so now they cost $6. Well, $6 is a lot for a cupcake and there are many other delicious things you could eat for that price, so a lot of people switch and start eating other tasty snacks. Cupcake makers are going broke! All they can do is cut their prices. Suppose they cut their profits from $2 per cake to $1.50; now a cupcake retails for $3.50 + 50% tax, for a total of $5.25. Sales are not quite as good as when cupcakes cost 'only' $5, but a lot of consumers come back to snacking on cupcakes - let's say 2/3 of them. Some smaller cupcake bakeries go out of business, the larger/smarter ones increase their market share.
In this case, government revenue goes up by 50% (75c increase per cake * 2/3 as many customers), but the burden of that falls 1/3 on consumers (cost goes from $5 to $5.25) and 2/3 on bakers (profit falls from $2 to $1.50). What's different from buying gas is that cupcakes are strictly optional: there's a desire to consume them but no actual need, and if the price changes there are lots of other things to eat instead. Thus demand for cupcakes is extremely elastic and can expand or shrink in response to price.
Seriously? Anything less than $1 million is already exempt, and they're still complaining?
I've been happy not paying sales tax on Amazon for years now, but when I heard there would be a law forcing them to collect, I didn't freak out. We had a good run of having to pay nothing. I didn't expect it to last forever.
Do people really want to avoid putting money back into the country at every turn? This is still America, and it's still great to live here. Taxes let it stay that way. Sure, we may not always like what they're being spent on, but that's a necessary part of being a citizen.
If you have a 3% gross margin and a million a year in revenue, you don't have enough money to hire even a single full time employee. Who is going to handle the new requirement to integrate 50 different software packages this bill requires the states make available to compute sales tax at purchase time, to fill out 50 sales tax forms every quarter/year, to cut and keep track of 50 checks...
A $1M/year seller could easily spend their entire year's profit just paying someone to keep track of which of the states have opted in to the new programs this bill will create, research the sales tax laws and forms in those states, research their software/APIs, build the integrations, etc.
If a federal sales tax law simply meant cutting one check and sending one spreadsheet to some authority that then divvies out the payments to the appropriate governments, that'd be something else. I don't think that's been proposed.
I guess I assumed it would be handled through ebay's payment system. If not, I could see how that would be a pain. Still, that's only 50 checks a year. Doesn't seem that difficult.
It's not the 50 checks a year, it's knowing 50 state laws (which are not all the same with regard to what is and is not taxed, and can and do change), tracking, computing, and being ready to prove to 50 jurisdictions that you've complied with their laws. If so much as one of them decides to challenge you on it, you can probably kiss your profits for the year goodbye. Merely writing the checks is trivial.
"The legislation includes an exemption for merchants that generate less than $1 million in annual out-of-state revenue."
Tying things to a dollar amount doesn't make much sense in any case.
1 million in sales of electronics (with low margins) is not the same as 1 million in sales of hand knitted sweaters (or pick your example).
What we will see is an entire middle layer develop to help "small" merchants deal with the complexity of collecting sales tax that will inevitably take a cut of the action and add an additional tax.
