Weekly Loop #04: Unfair Tax Burden

Weekly Loop 04

UNFAIR TAX BURDEN

Recently, the Supreme Court ruled in favor of states collecting sales tax for products sold online by out of state sellers. The case was specific to South Dakota, though paves the way for others to follow, as Alabama recently announced.

As ecommerce grows and more spending is done across state borders, it’s understandable that states want to makeup for any loss in tax revenue. With Amazon accounting for nearly 50% of all US ecommerce revenue, the simplest solution would be to hold Amazon accountable for collecting tax on all required sales and providing an easy way for 3rd parties to access reports and file taxes.

Instead, the burden is on individual sellers, including those selling on 3rd party marketplaces where Amazon is in control of the transaction. There’s no option to restrict products to customers from specific states or keep FBA inventory at a particular location. Sellers can’t even access customer data info to find out where they are located. Further, customers often don’t even realize they are buying from a non-Amazon entity.

While cross state tax issues aren’t completely resolved when selling on a standalone online shop, sellers are at least in more control of the transaction process.

It’s another case of Amazon getting the best of all worlds; control of all transaction data, control of third-parties inventory, and pushing any resulting tax obligations onto sellers. The result is certainly more of a burden on small businesses than on the nearly $900 billion dollar business of Amazon.


 

Recommended Links

Each week, we read and watch articles, blog posts, videos, infographics, books and more related to ecommerce. We share some of our favorites links on Twitter, Facebook, and LinkedIn.

In our weekly updates, we pare the links down to our favorite seven links from the past week.

Have a suggestion of something in to include? Get in touch.

— Amazon should collect sales tax and provide reports to sellers, rather than putting the burden on the sellers, who are comparatively tiny in scale. 

“While Amazon gathers sales taxes on products it…sells directly, it doesn’t collect on behalf of 3rd-party businesses”

The ‘Amazon Tax’ Ruling: Disrupting the Disruptors?
Published on July 10, 2018By David Dayen Capital & Main

“The big winner in all this is Amazon, which reaps large fees from third parties for access to its platform. Amazon typically takes 15 percent of gross third-party sales and sometimes as much as 20 percent, with fees on top of that for handling and shipping through the “Fulfillment by Amazon” network. This revenue pot has grown from $16 billion to $31 billion in just two years, according to Amazon’s financial disclosures. It’s highly likely that Amazon clears more profit than marketplace sellers on their transactions. So Amazon, by proxy, benefits financially from third-party tax avoidance, and the pricing advantage it provides. And, by not collecting tax, Amazon even avoids liability for mistakes made by third-party sellers that could trigger audits.There’s a simple fix to all of this, as Fiona Ma stated plainly to me: “Whoever’s collecting the money should collect the sales tax.””1

 

— Subscription boxes provide a great opportunity for ecommerce sellers to create a unique product with predictable revenue. Here’s a guide from Shopify on how to get started.

“But what exactly does it take to produce a box that your customers actually want to stick with?”

Designing a Subscription Box That’s Worth Unboxing Every Month
Felix Thea Shopify Blog – Company

“In this episode of Shopify Masters, you’ll learn from an entrepreneur who started his own monthly subscription box to introduce an entire culture to his customers.
Danny Taing is the founder of Bokksu: a premium subscription service that delivers thoughtfully curated boxes of authentic Japanese snacks and teas to your door every month.”2

 

— Choosing not to sell on Amazon doesn’t necessarily restrict your products from being sold on the site (though some brands are restricted). 

“But the reality is that your products are going to get onto Amazon whether you want them to be there or not.”

If You Aren’t Selling Your Products on Amazon, Someone Else Is
James Thomson The BigCommerce Blog

“There has been a lot of attention paid to all of the unauthorized sellers on Amazon—the companies that a brand isn’t affiliated with but finds ways to sell their products on Amazon.

When you lose control of your inventory and other companies have access to your product, the Amazon Marketplace becomes a problematic channel.

You can’t control pricing because you don’t know who the sellers are, and if you don’t know the sellers, how do you ensure that the Amazon channel aligns with everything you do in every other channel you control?”3

 

— If you’re looking for a niche, whether getting started or growing, check out this guide for how to choose a good niche. 

“The biggest mistake that you could make when you choose a niche is to choose one that has no demand”

How to Find Niche Markets for Selling Online
Marquis Matson Word-of-Mouth and Referral Marketing Blog

“To get fresh niche ideas, it makes sense to go where your target audiences hang out online. Look into their world and see if you can understand their pain points, what they are spending their money on, what their biggest complaints about a particular product are, and whether or not it’s an industry that you’re interested in joining.”4

 

  1. https://capitalandmain.com/the-amazon-tax-ruling-disrupting-the-disruptors-0710
  2. https://www.shopify.com/blogs/blog/bokksu-subscription-box
  3. https://www.bigcommerce.com/blog/selling-your-products-on-amazon/
  4. https://www.referralcandy.com/blog/niche-markets/

Andrew @ EcomLoop
Are you looking to start or grow a standalone ecommerce shop? I help independent businesses achieve success on the Shopify and WooCommerce platforms. As the owner of multiple ecommerce businesses, I've had the opportunity to get experience with nearly every aspect of the ecommerce industry. I started EcomLoop to help other quality independent businesses using my knowledge and experience. To stay on top of new ecommerce developments, I publish The EcomLoop Weekly Loop, a blog and email newsletter with original thoughts and curated links to help independent businesses improve their businesses.