Internet sales tax – Is this really happening?

When you sign up for any trade organization, you’re bound to get hammered with tons of news, press releases, and even politics.  So, I expect to see that stuff from the folks at NAMM – and it happens daily.  Usually it doesn’t impact me directly and I don’t really care.  However, yesterday I got something that raised my ire a bit.  NAMM is supporting the internet sales tax.  That’s fine, it’s their call, but let’s look at a few aspects of this thing…

First off, does paying sales tax on the internet matter?  Traditional brick & mortar retailers claim it’s an unfair advantage because people can get items 5-10% less online by avoiding tax.  I think this is a weak argument.  Here’s five reasons why:

1. Many sites charge shipping, which will outweigh the tax difference on many purchases.

2. There’s no instant gratification.  You have to wait 1-5 (or more) days to get your product from an e-tailer, when you can walk home with it from a physical store.

3. You’re supposed to be paying your own sales tax to your state at the end of the year (you’re doing that, right? hahaha)

4. Customer service in the online world is inconsistent at best.  Yes, customer service at the big box stores is pretty weak, but it’s the smaller stores that are crying about sales tax here and they are *supposed* to be the ones that offer the best service.

5. The biggest argument against all of these is Amazon, who is almost certainly going to start charging everyone sales tax very soon to avoid legal troubles with states.  So if you’re going to change Federal law because of them, that’s pretty dumb.

The next issue, is that NAMM is showing they are kind of behind the times here.  They are clearly bending to the interests of their retail member base, who is largely 15 years behind the times.  Most music shops don’t have websites, and if they do, they have no idea how to sell anything on their site.  The problem they face is that they cater to a local market, and national/global companies are encroaching on their business.  Little Billy could go 2 miles away to buy his new Ibanez RG, but he can get it from SweetWater without even putting on pants.  The mom & pop shops don’t like this, and NAMM wants to  keep getting their membership dues.

This is a problem I’ve found all over the music retail industry.  Manufacturers are in the same boat, unwilling to acknowledge the changing times.  Most big manufacturers will not talk to you if you do not have a brick & mortar store.  Sure, you could run a shop that sells people terrible products at awful prices (there are a lot of stores out there like this – selling A mark products at MSRP) and it wouldn’t matter, because you have a store where people can walk in and shop.  The industry really needs to wake up to the fact that the internet already became the standard many years ago.  There will always be a need and great benefits to having a physical store, but it’s no longer the overwhelmingly dominant channel.  The whole debate reminds me of newspapers and TV stations fighting to keep their content off the internet, believing that their dying medium will always be on top.

The reality is, I don’t care about charging sales tax.  I decided to start a website because I could do it without giving up my full time job and risking bankruptcy.  Also, I live in Milwaukee and there is already a store in town that sells a lot of the pedals I sell.  If I had a full line of gear that didn’t overlap with them, it would be a different story, but it’s not a town that can likely support too many higher end shops.  Getting off track though, my point is, lack of sales tax was never something I considered a competitive advantage.  I don’t think consumers would care, assuming the majority of sites charged tax.

The bigger problem is for the business owner.  When you have a physical store and sell locally, sales tax is easy.  You pay it to your state.  When you’re online, you have potentially 50 states (or multiple countries) to worry about.  Some states will require monthly payments.  Suddenly your start up business has to consider hiring an accounting person or paying insanely hefty fees to sales tax solution providers.  It’s not that it’s all that complicated to manage, but it requires more time than most business owners have when they are worried about fulfillment, web development, customer service, sales, content, marketing, their existing accounting duties, etc.  Requiring something like this without a very clear and simple outline of how to streamline payments is going to create a large barrier to growth for many small businesses.  And the irony is, this bill is claiming to help small businesses compete.

What do you think?  If websites started charging sales tax, would you care?  Would it make you consider buying in a physical store?