Under this antiquated tax loophole cemented in law by a pre-Internet-era Supreme Court decision, remote sellers enjoy what amounts to a federally protected price advantage which can reach up to 10 percent over their brick-and-mortar competitors. Since after-tax margins in wholesale distribution typically run in the 2 percent to 2.5 percent range, it is not difficult to understand what this means for the “typical” wholesale distribution business or its employees.
One glaring example illustrates how the present federally protected favoritism being shown remote online sellers hurts local employers and our national economy more generally. Take the case of Alibaba, the giant (larger than Amazon and eBay combined!) Chinese retailer that just had the largest initial public offering in Wall Street history. Alibaba is now doing business in the United States and taking full advantage of the outdated sales tax loophole. Unlike America’s Main Street wholesaler-distributors and retailers, Alibaba doesn’t have to collect sales taxes here. Until federal legislative action is taken to equalize the treatment of remote online sellers with local brick-and-mortar merchants, China’s largest company will grow ever richer at the expense of domestic wholesaler-distributors and retailers whose very existence will be threatened along with the jobs they provide.
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