NobleSpirit Newsletter - Internet Sales Tax - The Global Economic Risk - An Serial Entrepreneur's Perspective
What does the burden of an Internet Sales Tax actually look like to small business?
What are the global implications at scale?
If you think the global economy is too big to fail again, think again. Often the most profound deeply embedded forces are the most subtle, the most elusive to the naked eye. A series of like minded decisions can quickly turn into a trend, which can just as quickly turn into a phenomenon. The catalyst for the next economic downturn could be a vivid re-enactment of the last in 2008, or it could be as subtle as a whisper.
Taxation, by its nature can be a welcome expense in the company of robust prosperity or it can slowly erode the fabric of stability and growth. The introduction of an internet sales tax on SME's, (small businesses that represent 80% of the economic backbone of the United States), could conceivably unwind all the progress we have made since the introduction of the Internet.
I remember a time before the Internet.
As a serial entrepreneur who started business life in the early 1970's, I recall with acute clarity a time when the word 'scale' was a back breaking struggle to achieve market share. Prime placement was an eye level position on a crowded supermarket shelf if you were lucky enough to get it. Today, prime placement is merely a key word or social media sound byte away.
In the 1970's, there was no such thing as social media reviews in the night club/restaurant business. If your establishment wasn't advantaged by a prime location, niche demographic, compelling advertising...or best of all...word of mouth, you could expect an early night.
In the early 1980's a unique condition reporting system had a degree of accuracy that allowed us to ship valuable classic cars world wide. If you're old enough to know what a telex machine is, you will have some insight into the degree of effort that was involved in the simplest communication. In those days each transaction was - 100% - sight unseen. Imagine trying to sell a car today to a client halfway around the world for 5-6 figures without a single photo! What a game changer a few dozen photos on an 'internet' back then would have made. Today, eBay sells a car every 60 seconds. You could add the next car to your collection on your phone over desert at your favorite restaurant.
In the late 1980's, a first of its kind field sports emporium, was a consolidation of the 'great outdoors under one roof'. The concept attracted a global clientele across the spectrum of social and geographic demography. However, like any physical destination, if the front door bell doesn't ring, neither does the register.
1n 1998, thanks to eBay, NobleSpirit, leaped into a dimension unlike anything it had known before. Over the course of the next 20 years, our core business model was completely restructured, bearing absolutely no resemblance to life before the Internet. With eBay's low barrier to entry, we were able to tap into a global distribution network, allowing us to claw back multiple layers of profitability that were simply left on the table for scores of middlemen in a series of traditional venues over the previous decades. Nearly 200,000 worldwide customers later signal merely the tip of the proverbial iceberg.
The Internet has changed virtually everything by altering the speed and fundamental methods we use to communicate.
Access to brand equity.
Access to markets that would be too cost prohibitive to otherwise consider penetrating.
Access to systemic platforms.
The economic capacity we enjoy today is a direct result of the elimination of traditional physical barriers to access.
Yet, most SME's will never grow any larger than what they are now. They have arrived at their growth ceiling. Nonetheless, they provide an extremely important economic function. They represent an economy within an economy that would not otherwise exist. Whether they incubated a new idea or transitioned an existing business, SME's form a cohesive layer of stability that could easily be undermined by lawmakers who believe software companies claiming to deliver tax compliance solutions that simply have no basis in truth or fact. If SME's cannot grow organically, then they also cannot endure the burden of tax compliance complexity in the proposed Marketplace Fairness Act.
Since ecommerce still represents only ~8% of total retail sales in this country, it is safe to assume the Internet is still in its infancy and lacks maturity. Main Street is disadvantaged by the Internet, only when it chooses to isolate itself from fresh ideas and opportunity.
The proposed Internet tax is unsustainable because compliance is a raw unproven idea with strong potentially harmful downward pressure on sensitive SME revenue.
We recently acquired the property next door. The building on the left (Call it #10) is a restaurateur's riverside cafe dream come true. It boasts 200 feet of river frontage, views of a marvelous waterfall, and prime roadside access easy on/off parking for 50 vehicles. Unfortunately, even the best viral destination is severely constrained by limited community population of only 3,000 people on a secondary artery, and with minimal surrounding area catchment.
The building on the right (Call it #16) has 30 cars (and growing) it didn't have in it's parking lot months ago; and, sells several million dollars a year on eBay globally.
Whether we execute a fresh idea at #10 or annex it to #16, it makes sense to enable us to invest our dollars in growing the local economy and providing jobs rather than paying an unfair, unnecessary tax to multiple remote states that literally give nothing back to our community.
We hear small business tell us that an Internet Sales Tax would be very harmful to their business.
What does the burden of an Internet Sales Tax actually look like? What does potential non-compliance by 30 million small businesses in America look like at scale.
As a business owner, NobleSpirit has invested hundreds of thousands of dollars to build it's own proprietary business solution when none previously existed to executed some of the most fundamental management, and reporting tasks. Millions of businesses in this country still run their operations without the benefit of the simplest, most necessary business tools. In addition to our own Meridian software, we rely on an additional group of multiple tools used by our accountant, bookeeper, admin, shipping, management staff: Endicia to run USPS shipping, Shipwire to run UPS, Quickbooks, Shipsurance. None of which are integrated.
As a service provider of Meridian management software solutions to nearly 4,000 subscribers. We learned the enormous complexity of unique customization needed to power the vast diversity of business. Although, many seem the same on the surface, no two are alike internally. Any service provider that claims they have a single solution for every unique business in this country to address the complex and shifting tax compliance landscape is being, quite frankly dis-ingenious or seriously ill informed.
As the founder of a trade organization, (PESA) of some 8,000+ member professional merchants (from sole proprietors to household name brands), with a Gross Merchandise Volume of some $20 billion+, we learned that regardless of the size or infrastructure of the operation, lawmakers just don't realize what they are saying when they believe there can be a common integrable solution to deal with 13,000 tax municipalities throughout the land. Our summits were regularly attended by accomplished business owners who were smart enough to know you never stop learning about your own business. Sometimes best of all from your own competitors. Scores of Wall Street analysts were there at every summit convention because they knew what they didn't know. What exactly made that $20 billion tick.
The last time I visited Capitol Hill to speak to lawmakers on this matter, I had the pleasure of meeting my NH State Senator, Kelly Ayotte. Although I was speaking to the converted; nonetheless, the first thing she did when she became aware of the danger of an Internet Sales Tax, was assemble a business roundtable inorder to gain further insight into the specific implications of such an insidious tax on the fabric of the economy. We lost a strong voice at election time, and hope New Hampshire can once again lead the way to help lawmakers become better informed regarding the severe risks we face on a global basis. At scale a ripple becomes a tsunami.
The Internet would benefit from a better understanding and cultivation. Absent the Internet, hundreds of millions of transactions would never have taken place. The choice is clear. Stop progress cold. Or foster it. At some point in the future, relevant, fair, seamless taxation will be a welcome expense in the company of robust mature Internet prosperity. That day is still decades away.
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