Reality Check

Reality Check

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Wine Sellers as Window into Internet Fairness Bill

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    NEWSLETTERS

    In a Washington environment gripped by bitter distrust and capable of grinding down all manner of legislation, the Marketplace Fairness Act may become the latest casualty. Sam Brock reports. (Published Thursday, May 9, 2013)

    In a Washington environment gripped by bitter distrust and capable of grinding down all manner of legislation, the Marketplace Fairness Act may become the latest casualty.

    The bill strives to achieve a simple objective: Create an equal playing field for traditional retailers and online sellers by requiring all businesses of a certain size to collect local sales taxes.

    Implementation, however, could prove quite complex, spawning a series of claims from supporters and opponents alike about the bill’s impact.

    Ted Cruz, R-Texas, has been one of the most vocal opponents.

    In a recent op-ed piece for the Waco Tribune-Herald, Cruz described the measure as a “job-killing tax hike, plain and simple.”

    Cruz said fallout from the legislation would be “a national Internet sales tax which would hammer the little guy and benefit giant corporations.”

    Is the Marketplace Fairness Act actually fair, and will it really squeeze smaller online retailers?

    For perspective, NBC Bay Area interviewed managers at two wineries in Napa Valley whose businesses do more than $1 million in online sales, enough to qualify for compliance under the bill’s current version.

    John Ruel, Chief Operating Officer for Trefethen Family Vineyards, said he understands the spirit of the legislation and supports the idea of requiring all businesses to face the same tax standards.

    Trying to observe the individual tax laws of thousands of different localities, however, is an idea that perplexes him.

    “Already, we have so many licenses and permits, one for each state,” Ruel said. “If we think of sales tax districts, and I don’t know but there must be thousands across the country, I can’t imagine how we’re going to keep track of all the details to make sure we’re tracking down every penny for every wine bottle sold.”

    The same issue confronts Duckhorn Wine Company and  its President and CEO, Alex Ryan.

    Ryan described the bill as the inevitable evolution of e-commerce, where modern day laws are catching up with an industry rich in history and tradition.

    “Bringing our consumers close to our winery, one way or the other, via the internet or any other means is the way of the future,” Ryan said.

    “So I think we need to embrace the fact that the internet is going to look for ways to tax us.”

    Ryan, too, supports the idea of taxing all retailers by the same standards. But he also questions how the plan will be implemented, and believes the net effect could be onerous rules and procedures that small ‘Mom and Pop’ stores are ill-prepared to handle.

    “I think it’s going to be an interesting burden on the local retailers, and the local taxing authorities,” Ryan said, “figuring out- how does an individual wine sale comply with these regulations?”

    As it turns out, Ryan and Ruel are very unlikely to be affected by the logistical hurdles they’ve described.

    The wine industry is heavily regulated, and according to ShipCompliant, an industry expert, wine sellers already have to remit sales taxes in most states where they do business.

    “Wineries, because of the unique nature of wine legislation, are required to pay sales tax in about 30 states,” said Jeff Carroll, the company’s vice president of strategy and compliance.

    If the law preserves $1 million in online revenue as the threshold for companies to qualify, and sales taxes already paid out-of-state are factored into the equation, Carroll estimates that only about 20 wineries out of roughly 7,000 in the U.S. would end up paying additional sales taxes.

    “It would have no effect, whatsoever, on most wineries,” Carroll said.

    How does the rest of the business community feel about the proposal?

    The San Francisco Chamber of Commerce officially supports the Marketplace Fairness Act, on the basis that it boosts the competitiveness of traditional brick and mortar retailers without being unfair.

    “It’s not a ‘new’ tax,” said Chamber President and CEO Bob Linscheid. “It just allows for the collection of tax to online retailers.”

    Linscheid points out that rather than creating a new tax, the bill would shift the responsibility of reporting and paying the tax from the consumer, in the form of yearly tax returns, to the retailer.

    As for Cruz’s claim that the bill would unfairly disadvantage the ‘little guy,’ Linscheid says he can’t see the senator’s case.

    “I patently don’t agree,” he said. “It’s our opinion that because of the exemption [of $1 million] for small business, that it’s a fair way to assess tax to those who are generally online only retailers. I don’t see the argument.”

    Among major, multinational retailers, both of the traditional store and online variety, there is a rift in opinion.

    Target, Macy’s, Home Depot and online retailer Amazon have all come out in support of the Marketplace Fairness Act.

    EBay stands as its staunchest critic.

    On its government relations web site, eBay says the $1 million exemption isn’t nearly sufficient to protect small businesses, and that the larger corporations are bound to benefit from the bill.

    “Larger retailers leverage their size to negotiate tax breaks or grants, in addition to the favorable terms they can obtain throughout their supply chains,” the company states on its web site.

    “Unless the bill is amended to include a real small business exemption, it would actually damage the competitiveness of innovative small businesses.”

    The Senate easily approved the measure on May 6 by a vote of 69-27.

    Its prospects for passage in the House, however, appear muddied at best. Some anti-tax members of the Republican Party have already vowed to kill it.