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America’s Main Street v China’s Alibaba

  • Dec 16, 2014 | Gail Cole

Main Street sellers have long been opposed to tax-free internet shopping, which they argue threatens the well-being of the brick-and-mortar retail model. Level the playing field, they say. Make it so customers cannot go online and purchase without sales tax items that must be taxed in physical stores.

Many lawmakers support this idea, and many do not. The Marketplace Fairness Act of 2013, legislation that would enable states to tax out-of-state sales, was approved by the Senate in May 2013 but then largely ignored by Congress. Similar legislation, the Remote Transaction Parity Act, is said to be in the workings for 2015. In the meantime, some states are taking the matter into their own hands. Last week, the Michigan Senate approved remote sales tax legislation.

Taking it to the streets

The Alliance for Main Street Fairness (AMSF) is working toward the creation of sales tax laws that “treat all businesses equally.” It urges businesses to lobby for e-fairness and lawmakers to stop stalling on Marketplace Fairness. Most recently, it has turned its sights on Alibaba, the Chinese company described as a combination of Amazon, eBay and PayPal (Governing).

In a video on the AMSF website, deep-voiced narration emerges over background music, a simple piano rift of O Christmas Tree that sounds like Schroeder from Peanuts. The narrator explains:

“Alibaba is China’s largest online retailer. Their IPO was the biggest in Wall Street’s history. Now, they’re coming to America.

Thanks to the online sales tax loophole, this Chinese company will decimate our local retailers. Unless Congress ends special tax treatment for Alibaba and other online giants, Main Street will never look the same.

Tell Congress. Close the online tax loophole before it closes Main Street.”

David Brunori of Tax Analysts argues that throwing the Chinese Internet into the discussion of online sales tax “is just odd.” He says “tying sales tax collection to a Chinese online retailer is just silly.”

Yet Governing points out that Alibaba “dwarfs in size any existing e-commerce company,” accounting for “$248 billion in online sales last year—more than those of eBay and Amazon combined.”

To date, most Alibaba business takes place in China, “where it accounts for 80 percent of online retail sales.” But the company has footholds in the United States market. One clue is the launch of 11 Main, a California-owned subsidiary of Alibaba. The 2,000-some businesses selling through 11 Main are primarily small businesses not required to collect sales tax in states where they do not have a physical presence. That’s a familiar story.

The Alibaba tax

Anyone well-versed in the remote sales tax discussion will undoubtedly have heard the phrase “Amazon tax.” The language of future tax legislation may be shaped by Alibaba. According to Representative Steve Womack (R-Arkansas), a sponsor of the Marketplace Fairness Act, Alibaba may spark “realization that this problem is now going to another level – and it’s the next level that could be the fatal blow to a lot of small town retailers that are so vital to the economic well-being of our local communities.”

Yahoo Finance argues that Alibaba “plans to take its e-commerce platform strategy to emerging markets around the world, where the customer base and retail network more closely resemble its home market.” U.S. growth will be less aggressive than growth in areas with little competition from physical stores, such as rural Brazil.

On the other hand, the Alibaba subsidiary 11 Main does seem to be targeting U.S. Main Street shoppers. Forbes reports that “the marketplace features select vendors and boutiques that are meant to provide as close to an online representation of Main Street, U.S.A. as possible.”

And who knows? Perhaps 11 Main will be the salvation of Main Street. The site provides “a cheaper, niche-based approach for local businesses to list specialty items that can sometimes get lost among the millions of offerings on Amazon and eBay.” Like Square Market, the focus is to get “neighborhood businesses online and selling.” Brick-and-mortar companies prepared to launch into etail could benefit from such a site.

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photo credit: telwink via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.