Is Tax-Free Online Shopping Dead?

The U.S. Senate overwhelmingly passed a vote on its Internet sales tax bill, meaning the days of shopping online without paying sales tax are coming to a close. The dominance of online retailers in this tax-free zone will end, as will the lower prices consumers occasionally saw in the tax haven.

There was no doubt where the Senate was headed. It passed a procedural vote 63-30, a lopsided margin rarely seen for bills of any kind these days, let alone ones containing the word “tax” anywhere in title or description. The reasoning behind the bill is online retailers collecting more than $1 million in revenue like eBay (NASDAQ:EBAY) and Amazon (NASDAQ:AMZN) have had an unfair advantage over brick-and-mortar businesses such as Walmart (NYSE:WMT) and Target (NYSE:TGT). Online retailers haven’t had to pay sales tax when shipping out of state, but now they will.

So why has Amazon been lining up on the side of the tax hawks? The answer comes back to the customer-first approach taken by Amazon. For years, Jeff Bezos et al have seen Ebay’s reputation as the fastest shipping service grow. Amazon made its effort to strike back — it has built 10 warehouses across the country from which Amazon will expedite shipping. With warehouses in place, Amazon would have to pay sales taxes anyway. They saw the future and got out in front of it…

Efforts to stop the bill in the House of Representatives will likely stall its passage temporarily. As of now, the Senate plans to make its final vote on May 5. In the meantime, eBay will do its best to drum support to knock the bill down in an effort to  keep Amazon and brick-and-mortar competitors at bay.

It’s unlikely the bill can be stopped, as there is no justification for sellers with over $1 million in revenues to avoid the same tax liability as competitors. Retailers operating on a smaller scale (below the million-dollar threshold) and businesses competing with eBay stand to gain the most from the passage of the law. As prices for goods would no longer have a discount on eBay, customers are more likely to buy from a trusted retailer than buy from a stranger whose return policies are suspect and sometimes unenforceable.