Lobbying for change

Kelsey McDonnell stamps a saying on one of her various jewelry pieces available on her Etsy shop, Wyoming Creative. In September, McDonnell traveled to Washington, D.C. with a contingency of other Etsy sellers to discuss internet sales tax proposals with legislators.

From her shop on Bennett Street in Buffalo, Kelsey McDonnell handcrafts jewelry and accessories stamped with meaningful inscriptions. She began with bracelets bearing inspirational quotations, but her shop – Wyoming Creative – has grown to include cuff links, key chains and even fishing lures.  

Right now is the slow season, but soon Christmas shoppers will pour into her online store to select the perfect gift for loved ones. Each year, McDonnell handcrafts about 4,000 pieces and then sells them using Etsy, the popular online marketplace for handmade goods. Then she prints out mailing labels, packages her wares and ships them from Buffalo to every corner of the planet. It’s that global audience that has allowed her to make her living as an artist.

“My market is global,” McDonnell said. “I do sell in Wyoming, but my business is successful because I sell globally. This selling platform has changed my life – I got to stay in Buffalo and raise my kids here. There’s not a ton of opportunities here for an artist.”

Like other remote retailers, including online behemoth Amazon and catalog-based retailers like Lands’ End and Williams Sonoma, McDonnell collects sales tax only on goods she ships to in-state customers. And that’s money down the drain according to many policy makers.

What’s the issue?

Governed by the 1992 U.S. Supreme Court decision in Quill Corp. v. North Dakota, online retailers are allowed to collect sales and use taxes only in states where they have an in-state, physical presence. And as online spending has continued to grow – online sales amounted to about 9 percent of all retail activity in the second quarter of 2016 – the list of Quill detractors has grown.

Ever since it was decided, states and municipalities have complained that Quill amounts to a tax break that allows out-of-state businesses to take advantage of the local customer market without contributing to the state’s sales tax base.

The National Conference of State Legislatures estimates that in 2014 Wyoming lost out on $61.7 million in sales tax revenues to catalog and online sellers that cannot collect sales taxes on purchases by Wyoming residents and businesses.

Main Street retailers too have decried the ruling as unfair, giving out-of-state retailers an unfair advantage because they don’t have to collect sales tax.

Over the past year, several states have launched efforts to challenge Quill. During the next legislative session, Wyoming will join those ranks as it considers a bill to tax products bought over the internet and delivered to Wyoming. During the Joint Interim Revenue Committee’s hearing in Buffalo in September, legislators argued that those who avoid sales taxes by purchasing goods online are reaping the benefits paid for by their neighbors who do pay taxes when they purchase goods from local merchants.

Looking for solutions — and tax dollars

Against this backdrop, federal lawmakers are considering four different proposals that would tax internet sales.

Sen. Mike Enzi has introduced internet sales tax bills in two of the past three years that have cleared the Senate only to die in the House of Representatives. This year, the Wyoming Republican sponsored the Marketplace Fairness Act, a destination-based system. The act would give states the option to require out-of-state businesses, such as those selling online or through catalogs, to collect and use taxes already owed under state law the same way local businesses do. Small sellers – those with less than $1 million annually in remote sales – are exempt from the act and would not have to collect sales taxes. According to an analysis by the Small Business Administration, more than 99.9 percent of all online sellers would be exempted under the small-seller exemption.

The small-seller exception is something that McDonnell said is paramount to the survival of small-business owners who rely on a national market.  

Last week McDonnell, along with a contingency of 15 other Etsy sellers, traveled to Washington, D.C., to meet with legislators and staffers to share their concerns about the various internet sales tax proposals.

“We were lobbying for the idea that internet sales tax should not add to the administrative burdens of micro-businesses, that compliance should be simple and that they should recognize the difference between a business of one (employee), a business of five to 10 and a business of 500,” she said.

In a statement, Enzi said the proposal would put small businesses on a level playing field with online retailers.

“The Marketplace Fairness Act is about supporting the jobs we have in our towns. It is about the people who are our neighbors who work in our local stores. Right now, thousands of local businesses are forced to do business at a competitive disadvantage because they have to collect sales and use taxes and remote sellers do not,” said Enzi.

A self-proclaimed one-woman shop, McDonnell handles every aspect of her business herself – from the design and creation of her jewelry to photographing and posting her inventory to the packaging and shipping. Adding onerous sales tax collection rules might be enough to force some micro-businesses out of business.

“Imagine if I had to go through every quarter and figure out what the state taxes were for all 50 states,” she said. “I can’t imagine what it might do to some small businesses, they might just opt out and not stay in business.”

During her two days in Washington, McDonnell had the opportunity to meet with staffers and share her story and the stories of other businesses owners like her.

“There was a really diverse group,” she said. “In my head, I felt I was representing these businesses from really rural areas. My hope is that by telling those stories of these micro-sellers, it helped separate small sellers from these big online retailers. It could wipe out these small businesses.”

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