Marketplace Fairness Act may raise prices but is not likely to curtail e-commerce activity

Even if a sales tax is applied for online purchases, the e-commerce supply chain will likely emerge unscathed.

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Online shopping, or e-commerce, has been a boon for consumers for many reasons, including being able to “shop” from home, not having to go to the mall, and ease of use. But there is also the matter of not having to pay sales taxes either, which serves as a benefit to many consumers, especially during these uneven economic times.

But the days of consumers not having to pay taxes for online purchases may not be for much longer, due to a piece of legislation recently passed by the United States Senate, entitled the Marketplace Fairness Act.

According to http://www.marketplacefairness.org, this bill grants states the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction - exactly like local retailers are already required to do, but states are only granted this authority after they have simplified their sales tax laws. The site added that the Marketplace Fairness Act requires that states must simplify their sales tax laws in order to ease those concerns and make multistate sales tax collection easy.

Just how many, or if any, impact is felt from this bill, should it be signed into law, remains to be seen. But given the increasing emergence of e-commerce from both a consumer ease and increased bottom line for parcel bellwethers UPS and FedEX, it stands to reason that the effects of the bill could be minimal even though we consumers may have to pay a little bit more for that hockey stick or new shirt we order online.

That was the prevailing sentiment from Rob Martinez, president & CEO of Shipware Systems Corp.

“While Fred Smith of FedEx, Scott Davis of UPS and other parcel industry executives have been quite vocal on some legislative issues (corporate tax reform, free trade, energy, homeland security, NTSB, and others), I don’t see [much] regarding online sales taxes,” he said. “UPS and FedEx have obviously benefited from the growth in ecommerce in recent years – and continue to do so.  Growth within the Ground Residential networks (including FedEx SmartPost and UPS SurePost) continue to outpace other divisions.  With the USPS, parcel services (including Priority Mail, Parcel Select and First Class Parcel) are growing and profitable.  I’m surprised these companies are not actively lobbying to squash proposals for online taxes.”

Alternatively, Martinez surmised that UPS and FedEx might have realized online sales taxes will mirror sales taxes as an eventuality in tax-strapped municipalities.  And Martinez said he believes that the online sales tax will not have too much of a negative impact on e-commerce’s meteoric growth into the future, due to the fact that consumers shop online for the myriad of benefits afforded including time savings, price/product/company comparisons, lower cost of goods, home delivery convenience, free shipping promotions, and easy return policies.

Jerry Hempstead, president of Hempstead Consulting, noted that while online purchasing has taken off because of its convenience, people have become inured to being taxed.

“People should be outraged that our elected officials are enabling this new tax on us,
but my opinion is that the tax will not drive people back into retail stores,” he said.
“People enjoy the tremendous convenience of on line shopping. They have to pay sales tax if the go to the retail store, don’t they? I’m still angry that this is just another way to tax us and nobody seems to get upset about it. We already pay enough tax.”

If this does get signed into law, it is hard to imagine any type of material decrease in e-commerce activity. What’s more, the advent of e-commerce activity has seen more than a few retailers actively get involved in the e-commerce game, which could essentially be viewed as taking the steps needed to survive and compete.

Hempstead is right that we do pay enough in taxes but even if this becomes official, it is not as if consumers everywhere will be flocking back to the mall, as is Martinez in pointing out the many consumer creature comforts e-commerce brings.

The emergence of e-commerce is playing out in supply chain design, too.

As London-based Transport Intelligence (TI) observed in an October 2012 research paper, warehousing and fulfillment markets are undergoing significant changes as companies incorporate e-commerce into their overall strategy.

These decisions include things like where to place physical locations of warehousing and whether to fulfill e-commerce orders from separate facilities, in-store, from existing warehouses or a combination of all three are among the strategic decisions brick and mortar companies are facing as they compete against the likes of Amazon and eBay. 

What’s more, things like speed to fulfill and options in the final delivery location are similar for most companies while the need for visibility over the entire process is in demand as companies’ supply chains are further complicated, TI said.

When it comes to e-commerce purchases being taxed, it seems fair to say that should that eventually occur consumers are likely to keep buying online and supply chain stakeholders are equally likely to keep planning for the future, a future in which e-commerce activity continues to emerge as a growing link in the supply chain.


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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