Today’s Washington Post includes an article on Virginia politics that, among other things, purports to explain why the Marketplace Fairness Act is needed to achieve fairness. Brick-and-mortar tennis specialty shop owner Justin Wilson is featured prominently, presumably because he’s giving up:
“Six percent on a $200 racket is 12 dollars they don’t have to pay me,” he said. “I put up the white flag. It’s just simply not worth it.”
Wilson and other Virginia business owners are frustrated with Congress’s failure to act on a bill that would force online retailers without a brick and mortar presence in states such as Virginia to levy sales tax at the point of purchase.
Reporter Jenna Portnoy does not cite any other Virginia business owners, so it is reasonable to infer that she completely believes Justin Wilson’s explanation.
But does Wilson’s explanation make economic sense?
We’ve posted three times before on the Internet Fairness Act — what constitutes a “level playing field,” comparing alternative unlevel playing fields, and who would bear the cost of collecting taxes on online sales.
It is true that an online retailer the same size as Wilson’s shop that is located outside Virginia does not need to charge Virginia sales tax. But such a retailer would have to pay for shipping, either by charging the customer or accepting a lower profit. For example, a Wilson Pro Staff RF97 Autograph Racquet sells for $219 on Amazon.com. Shipping is free–or, at least it appears to be. In fact, seller The Tennis Zone pays. This racquet is one of 1,841 products it sells through its Amazon storefront. The Tennis Zone also has to pay Amazon for the storefront. Justin Wilson does not pay either of these costs.
A Wilson ’11 Blade Team BLX Tennis Racquet sells for $233.97, plus $4.77 shipping, from the Gray Fox USA Amazon storefront. But Amazon tells consumers that Gray Fox has a competitor, Amazino, that will sell the same racket for $144.49, plus $4.99 shipping. That price difference — ($239.74-$149.48)=$90.26 — far exceeds Justin Wilson’s estimated $12 in Virginia sales tax on a $200 racket.
There must be other, and more powerful, reasons why Justin Wilson did not succeed in retail. One reason is that success in retail generally is very difficult. In an undated article, Lou Hirsh reported in the Houston Chronicle reports that, based on data obtained from Dun & Bradstreet, fewer than half of all retail start-ups are still in business after four years. David Wallace reported a similar story in a 2013 article in Small Business Trend. Self-described “serial entrepreneur” Eric T. Wagner quotes from a report in Bloomberg that eight out of 10 entrepreneurs who start businesses fail within the first 18 months.
None of these writers list sales taxes that online competitors don’t pay as a cause of brick-and-mortar business failure. And when price differences across sellers exceed differences in sales taxes imposed across jurisdictions, these differences cannot be the dominant contributor to business failure.