August 1, 2012, 12:00 AM

When, not if

(Page 2 of 2)

For Amazon, the priority has become building a network of distribution centers that lets it fulfill online orders quickly and provide a high level of service to the thousands of client retailers that use the Fulfillment by Amazon service, which warehouses and ships goods on retailers' behalf. In 10 metropolitan areas, including Boston, New York, Chicago, Phoenix and Seattle, Amazon now offers same-day delivery for some orders.

Other e-retailers, meanwhile, are turning their focus to pushing for attractive terms in any new tax system.

NetChoice, an advocacy group whose members include eBay Inc. and IAC/InteractiveCorp, the parent of Shoebuy.com, contends, along with Overstock's Johnson and others opposed to online sales tax, that federal law and any new system it backs should protect web-only merchants from the costs and legal complications of sales tax collection. Steve DelBianco, executive director of NetChoice, argues that because small retailers don't have the resources to manage tax collection or the sales volume to charge tax and still offer competitive prices, any new law should exempt them if they do $5 million a year or less in sales outside of their home state.

Overstock's Johnson backs DelBianco's contention that collecting sales tax is a huge cost, even for a big retailer like Overstock, which posted more than $1 billion in web sales last year. An in-house study Overstock conducted recently found that it took more than 20 employees over five months, or 9,412 man hours, to test tax collection software. Although the software's annual license fee was less than $50,000, internal development costs, external consulting fees and other technology costs ran the start-up tab to nearly $1.3 million. "And that's just for one state," Johnson says.

Many small retailers simply lack the resources to handle tax collection, says Corey Tisdale, CEO of home furnishings retailer ShoppersChoice LLC. "Big-box stores already have the accounting infrastructure to deal with such a change, but a small million-dollar retailer probably won't even have a full-time accountant on the payroll outside of the owner, and this person is probably shipping and answering the phone as well."

Johnson contends that merchants should receive at least 5% of collected tax revenue, plus legal immunity from tax collection errors based on faulty tax collection software, and a method of handling at the federal court level legal disputes that may arise between merchants and states. "If Congress wants to solve the sales tax collection issue by forcing remote sellers to collect it, the law should be the least onerous as possible to merchants," he says.

Consumer reaction

If Congress does act, e-retailers will have to deal with the consequences. The biggest question is: Will consumers buy less online if they have to pay sales tax?

The answer is not clear. A 2010 study by e-commerce technology company GSI Commerce, a unit of eBay Inc., found that one of its client retailers took a 12% hit to sales after it started charging sales tax. But a study last year by Forrester Research Inc. and Bizrate Insights found that only 8% of online shoppers say sales tax makes a big difference in whether or not they buy online.

Some say e-commerce is strong enough to withstand what seems to be an inevitable new sales tax system. "I do not believe the primary value driver of e-commerce is sales tax avoidance," Tisdale says. "So I think the initial sales dip will be pop-cultural and temporary, and as the news becomes old, people will go back to shopping online for reasons of convenience, research, selection and so on."

Until that time comes for sure, Tisdale and colleagues like Johnson won't be heading to the quiet hills to escape the sales tax juggernaut any time soon.

paul@verticalwebmedia.com

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