Ecommerce Market Battleground Shift Because of Legislation

Yesterday, the US Senate passed the online sales tax bill by a 69-27 vote.

The measure will shape the e-commerce space, certainly affecting Ebay, Amazon, Etsy and others. The bill still needs to pass the GOP-controlled House of Representatives and receive the signature of President Obama, a supporter, to become law. The legislation would require Web-based retailers with sales of at least $1M to collect sales taxes for the states where they ship goods and merchandise.

E-commerce accounted for $225B in revenues in 2012, according to the US Department of Commerce. To put this in practical terms using my state… California would experience between 15-20% of that volume, at 9.25% tax rate, so … well, it’s easy to do that math and know why this is a big deal. Amazon, which until recently was dead-set against a national online sales tax, now embraces it as it looks to expand its physical operations across the USA. eBay, Amazon’s rival, argues the tax would hinder its sellers who do more than $1 million in out-of-state sales annually. In a recent letter to eBay sellers, Chief Executive John Donahoe pushed the suggestion that the law should exempt any firms that have fewer than 50 employees or make less than $10 million annually on out-of-state sales. With no national way to establish the tax base, calculating taxes could become it’s own nightmare of a business problem (and I could imagine both Amazon and Intuit offerings to address the need). As you might imagine, national and regional chains are tired of being showrooms for shoppers (hello Best Buy!) so they’ll be lobbying hard to pass this legislation and thus change the market dynamic. They are sick of having customers shop in their stores and then search on their smartphones for lower prices to buy it online. (That said, I think the regional chains are mostly deluding themselves to think this is the core issue of their problems.) According to a recent University of Tennessee study, states missed out on over $11 billion in uncollected taxes in 2012 from online purchases.

There are many times when being small, and Gazelle-like is an edge in the Social Era. But this legislative issue is one that benefits the Gorillas’ of the world. It means that small independent players *need* the efficiency and capabilities of a big platform like Amazon or Ebay to be able to do their business, ideally handling this tax payment issue on their behalf. That makes me think that this tax issue changes the relationship from an interdependence to a reliance. Power will jump to the platform players like Amazon.