“Free Software” Comes at a High Price for Everyone

The eMainStreet Alliance, a group of over 650 small Internet retailers, has a series of new online videos that clarify exactly how the Marketplace Fairness Act (MFA) would impact their industry.  Proponents of the online sales-tax scheme have tried to argue that compliance with legislation will be easy and not impose any significant cost to online retailers. As Drex Davis, a small business owner and co-founder of the eMainStreet Alliance makes clear, that would not be the case:


“There are at least 227 different shopping cart solutions in use online, and only a fraction of them work with the software.  …. Businesses will have to pay tens of thousands - and in some cases hundreds of thousands of dollars to write custom integrations.”

“And it’s not just one piece of software from one state; Companies could have to integrate different pieces of software for every state that demands tax collection. Having to use third party software and remote servers to look up sales tax rates can slow down or interrupt the checkout process, causing cart abandonment or an incorrect tax collection.”

As Davis goes on, software integration is just the beginning of the costs and problems small business owners would face trying to comply with the MFA:

 There is additional cost in data preparation, too, because the software doesn’t work until you prepare your data. To provide proper data, companies will incur costs to classify every single product under guidelines dictated by the software, and with different rules depending on the state.  For example, does the state consider a belt an accessory or clothing? These categories are taxed differently.

In fact, there are 9,998 different tax jurisdictions online retailers would have to comply with. As the video goes on to explain, the complexity of complying with so many different tax structures would make online retailers particularly at risk of audit by out-of-state authorities where the small business owner doesn’t have a real voice or representation.   According to the eMainStreet Alliance, under the MFA, the risk of audit goes up “4,500 percent”!

While she was still writing for the Daily Beast, Megan McArdle (now at Bloomberg.com), outlined specifically just how difficult it would be for small businesses to comply (and just what a boon it would be for large e-retailers who would see their competition buried), concluding, “This is death for a small business in the fledgling stage.”

A study by McKinsey & Company found that the “Internet is a critical element of economic progress, pushing a significant portion of economic growth.” And that the “Internet is also a catalyst for generating jobs. Among 4,800 small and midsize enterprises surveyed, it created 2.6 of them for each lost to technology-related efficiencies.”

In a changing global economy with new business models emerging every day, it’s clear that meddling with the online marketplace could stifle the economic growth and jobs the Internet is generating. New costly regulations that drive away consumers and set-up roadblocks for online entrepreneurs would have broad-reaching economic consequences at a crucial time in our ongoing recovery.

That’s why it’s so important that we not only oppose the MFA, but that we urge the Senate to pass a clean version of the Permanent Internet Tax Fairness Act (PITFA) – a bill that would prevent states from imposing costly Internet access taxes and ensure everyone can take advantage of the myriad opportunities the Internet makes possible.

Click here to urge Senator Read to oppose the MFA and pass a clean version of PITFA.

To learn more about the myths and facts surrounding MFA, click here.