Marketplace Fairness Coalition to eBay CEO: Stop Objecting to Internet Sales Tax and Get the Facts Right

By Peter Bernstein May 03, 2013

The sharp knives and elbows are now on full display as the U.S. Congress gets ready for final approval of the Marketplace Fairness Act, which passed the U.S. Senate a month ago on a 75-24 procedural vote. For those not familiar, the Act is designed to give states the authority to tax out-of-state retailers for online sales. Such taxes have been out of the reach of states because of a 1992 Supreme Court ruling that sales taxes could only be levied on sales where a selling entity had an in-state physical presence. 

Financially strapped states have seen one of their major sources of revenue decrease dramatically over the years as e-commerce has flourished, and not only local lawmakers, but a diverse set of interests that spans the business community has gotten rare bi-partisan support that it is time for the exemption to end. This is why the legislation is seen as crucial even as eBay, its massive merchant base seemingly at risk, went on the offensive a few days ago when the company’s CEO John Donahoe blasted out an email that called those who use his site to lobbying against bill’s passage.

That was then and this is now. The Marketplace Fairness Coalition, a group of businesses from around the country, said that eBay was armed with “inaccurate comments” as it fought the bill.  They made that point explicitly in a letter to Senators on April 21, but felt compelled to address Mr. Donahoe directly, now that the bill is scheduled for a final vote. 

The Marketplace Fairness Coalition, a group of businesses from around the country, sent the eBay CEO a letter that said: “Fortunately, a broad coalition of sellers, states and municipalities from across the country, as well as a strong bipartisan majority in the U.S. Senate and Governors in both parties, recognize that the time has come to pass this bipartisan compromise legislation that would level the playing field and restore fairness to the marketplace.” 

This is in reaction to the eBay e-blast that asked merchants to seek provisions that would exempt businesses with less than $10 million in out-of-state sales, which is way north of the $1 million exemption in the bill. The company also tried to scare its smallest merchants by saying that it could threaten their vitality because of the costs they would incur in collecting the taxes.

In its letter, the marketplace fairness group was pretty blunt in pointing out what it believes are misrepresentations by Donahoe designed, in essence, as unwarranted fear-mongering. They took exception to remarks by the CEO in a recent interview with The Wall Street Journal where he expressed his cost concerns by countering that the bill would mandate that states give businesses free sales tax software and would not give states more authority to audit companies. They also pointed out as they have previously that the $1 million exemption “would exempt over 99 percent of all online sellers from any collection or remittance requirement and, of course, eliminate any distant concern about audits.”

As I noted in my previous reporting on this battle, eBay was going to have a difficult time in stopping the bill as written from passing the Senate. States need money, and the broad support in favor of action is impressive. I also noted that this is as much about business as it is about fairness, and eBay will be under the gun if it passes, as smaller merchants hear the siren song of Amazon and look to minimize their expenses by leaving for more fulfilling (pardon the pun) pastures. 

This was a nice try by eBay, but it appears to be too little too late. While passage in the U.S. House of Representatives is still on the table, the outcome is likely to be similar, and eBay is going to have to adjust its business model to keep its merchants in tow.

Edited by Alisen Downey
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