December 2, 2014
Will Alibaba reinvigorate or ‘decimate’ Main Street retail?
Alibaba promotes its marketplace approach as being very small merchant friendly. But will a failure by Congress to pass sales tax fairness legislation make it so the Chinese giant winds up putting more small stores out of business than Amazon.com, Walmart or any of the other companies that typically top the list of big retail boogeymen?
A new commercial from the Alliance for Main Street Fairness makes clear this group believes Alibaba’s entry into the U.S. market represents a clear and present danger to the small and large businesses it represents. Further, the Alliance is apparently keen on using the Chinese company’s foreign origin to put some heat on legislators to act before the end of the lame duck Congress.
![[Image: Out of Business]](data:image/svg+xml;base64,PHN2ZyB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciIHZpZXdCb3g9IjAgMCAxIDEiIHdpZHRoPSIxIiBoZWlnaHQ9IjEiIGRhdGEtdT0iJTJGcHVibGljJTJGaW1hZ2VzJTJGZGlzY3Vzc2lvbnMlMkYxNzk0MSUyRm91dC1vZi1idXNpbmVzcy1zdGlsbC5qcGciIGRhdGEtdz0iMSIgZGF0YS1oPSIxIiBkYXRhLWJpcD0iIj48L3N2Zz4=)
The voice-over for the new spot reads: "Alibaba is China’s largest online retailer. Their IPO was the biggest in Wall Street’s history. Now, they’re coming to America. Thanks to the online sales tax loophole, this Chinese company will decimate our local retailers. Unless Congress ends special tax treatment for Alibaba and other online giants, Main Street will never look the same. Tell Congress, change the online sales tax loophole before it closes Main Street."
Alibaba, according to a Financial Times report, has rejected the allegations in the commercial as not being fact-based and claims the company pays taxes based on prevailing laws in the countries where it operates. Alibaba also reinforced its role in providing domestic businesses with the opportunity to bring their goods and services to the growing Chinese market.
Retailers supporting sales tax fairness legislation have been stepping up the campaign to get Congress to act. While the Senate passed the Marketplace Fairness Act in 2013, the House of Representatives has not yet voted on similar legislation before it.
David French, senior vice president at the National Retail Federation, wrote last month on the association’s site, "The measure has stalled in the House over unfounded concerns and misinformation spread by opponents."
Seventy-three percent of respondents to a RetailWire poll taken on Nov. 20 said the next Congress is unlikely to pass sales tax fairness legislation.
- Out of Business – AMSF Stand With Main Street/YouTube
- US retailers target Alibaba over sales tax ‘loophole’ – Financial Times (tiered sub.)
- Did the GOP victory end hope of the sales tax fairness bill’s passage? – RetailWire
- Lame Duck Could Be Last Chance For Sales Tax Fairness – National Retail Federation
BrainTrust
Recent Discussions
Discussion Questions
Are concerns about Alibaba exploiting the U.S. sales tax situation valid or simply a scare tactic to get Congress to act? Do you see Congress as more or less likely to take a vote based on the Main Street campaign?
Poll
First of all, if 11 Main is an example of how Alibaba is going to market in the U.S., no one has anything to fear. I was actually shocked at how poor the product offering was.
Second of all, I really thought that Alibaba’s B2B offering (the actual alibaba.com site) would be a boon to small businesses. Prices are really good and you can buy small to large quantities of “stuff.”
Third of all, there is nothing to stop small retailers from using Alibaba (or 11 Main) as a marketplace, just like they do Amazon, Yahoo and Etsy.
Finally, no matter how many ways you slice it, store-based retail still generates 90 percent of retail revenue. I think retailers are waking up to the fact that Amazon is not their worst nightmare (recent RSR data is telling us that—very different from prior years).
If Main Street retailers mind their knitting and continue putting the customer and interesting products first, they should be able to take advantage of consumer sentiment and do well.
Boy that’s a tactic I don’t think is good. They are implying it’s the Chinese and their sneaky ways that are out to kill Main Street.
I support the marketplace fairness act, but the real ones who are blocking it are Republicans. And the ones who have the most to lose are the small businesses standing on the sidelines saying someone else needs to help us.
There is no Chinese company who is responsible for their success with this effort, it is the very merchants it is designed to help.
I see no difference between Alibaba and Amazon. In fact I see Alibaba as a competitor to Amazon and I believe it will in fact will help the small merchant by giving them an option over just having Amazon to deal with.
If Main Street is looking at the sales tax issue as what is going to put them out of business, then they are going out of business! They have to look at the trends in retailing. Online is not successful because they do or don’t charge sales tax. They are successful because they are online. The price competition presented by mass retail and big box is far more challenging than the issue of sales tax.
Here is my message to the Main Street retailer: You better find a way to attract customers with something other than price, because you will NEVER win on price.
Valid if it persists for the next several years, but at this point more a scare tactic as online retailers have been much more active collecting sales tax over the last few years. When Amazon capitulated, that was the sign that the free lunch would be coming to an end. If this doesn’t get voted on in 2015, we’ll have to see what a new administration brings in 2016, but if the pain levels rise high enough some relief will be forthcoming, in my opinion.
This is more of a scare tactic to protect poorly-run retailers. If a minor sales tax loophole is going to put your business under, it’s probably a poorly-run business to begin with. Well-run, good retailers will benefit if poorly-run retailers are forced out. This is similar to when high-paying retailers will promote a minimum wage increase. It doesn’t impact them but it impacts their low-wage competitors. On the flip side, are U.S. companies exploiting the Chinese market in any way?
Alibaba is no more guilty of exploiting U.S. sales tax situations than other channels of distribution or competition. Whether Congress will take a vote to change the tax laws applying to e-commerce is the actual question that should be asked.
At times it seems like sales taxes are as different and unique as snowflakes. Some communities have Back to School tax holidays, some charge sales tax for food and others don’t. Drive over a county line and find a different sales tax from the one you just left.
If Congress does tackle this Rubik’s Cube issue, they will have to address how and if the sales tax has to be applied, and which city, county and state portions are to be doled out by jurisdiction. The retail community of Main Street has to take this issue on, but there is no need to make Alibaba the fall guy.
I guess retailers/lobbyists are hoping that this tactic may have more impact now that they actually have a “red” herring to flog.
Good grief.
Consumers, especially e-commerce consumers, are tired of the extortionist levels of taxation that are imposed on the not-so-free markets. As previously mentioned by RetailWire’s discussion contributors, there are ways for retailers to become included in the “evils” of taxing free trade. Anyone wishing to increase market range and scope needs to get on board while the getting is good. Remember, business is all about the customer and the mainstay of retail customers will feel compelled to be in on any tax reductions and/or eliminations that are available.
More taxes. That’s what everyone who supports this “fairness” campaign is asking for.
“Fairness” in the bill title should be the first warning sign.
How many of us actively want more government regulation in our own industry? Then why should we support it for others?
Why would you ask for more taxes? Why would you ask for the feds to take over another state program? Why would you ask for the state’s legal/regulatory power to extend beyond its own borders, let alone national borders?
This campaign doesn’t prove the existence of a “loophole.” Rather, it shows the damage inflicted upon retail by regressive use-based taxation, specifically the sales tax.
We do need a state and national discussion about taxation. But the solution is not to extend the existing, problematic taxes even further.
I always find it interesting when people bring up the taxes as if we need to be taxed more. Instead of blaming the online retailer for being able to not charge people taxes, maybe governments should figure out how to operate without the need for sales taxes. I’ve worked in small and large retailers. When there is a tax-free holiday, sales go up! Sales go up so much so that without them, some retailers wouldn’t make money in Q3. Jobs are created, then people spend more money which helps the overall economy.
I have not heard a single consumer want to be taxed more. This is why you see stores in New Hampshire on the border make more money on Black Friday than stores in Concord or Manchester, because all the people from Maine and Massachusetts are going over the border to buy products without taxes. It’s not internet retailers that are the bad guys here, it’s the taxing policies of state governments. Will Alibaba destroy Main Street? No, I’ve shopped there and didn’t buy anything because it’s not my kind of experience. Now if governments continue to hurt small businesses with taxes, then that may help drive sales away from small businesses.
“Solving” a competitive disadvantage with taxes is the first sign that the debate is off track. But even if charging more tax did provide a solution, the cure is worse than the condition. Problems with the Marketplace Fairness Act are myriad, including:
1. Commercial consequences
- Small businesses that innovate online will be penalized. The internet opens new no-sales tax markets for local businesses
- States will be granted new powers to states to audit businesses. A small business in Wisconsin can be summoned by a court in Illinois for litigation, imposing excessive costs.
2. Governance problems
- The Constitution’s Commerce Clause will be undercut. The intent of the Clause was to ensure citizens across states could trade freely.
- The US is a country of “unfair” taxes. Should all playing fields be leveled? No. Businesses on the borders of California and Washington can thrive even though Oregon charges no sales tax.
As the convincing arguments above indicate, this is a bigger issue than taxes. It’s not just Alibaba or Amazon but an entire new class of competitors from eBay to Craigslist, from large enterprises to individuals, from domestic to offshore, that are redefining Main Street. The real answer is how to compete with the cost advantages, not the tax advantages. But that is a topic for another RetailWire discussion.
Bricks and mortar stores can not change the tax code, and this fight for small businesses like mine is wasting precious time. I know what is needed to survive, and even knowing what to do doesn’t guarantee success.
What is the strength of small business? The people who represent your store is first and foremost the biggest asset we have. Secondly, finding ways to create new items, or new ways to merchandise your product line is critical.
Having the trust of several great vendors will keep the promotion pipeline full, and making sure your community knows who and what you are through social media and networking is something that needs to be done daily.
The reason many of us hate big corporations (lousy service, excess fees, no contact with a real human being), is what we as small businesses should do WAY better than the big boys, and if you can do it properly, the niche you are carving out will sustain and help grow your bottom line. This is not easy, but what is? Keep the faith my small business friends, and happy selling!
As an owner of a small business (two stores in a Main Street USA environment), I am flabbergasted that the state of Michigan foregoes massive revenue from all the tax collections lost. By law, individuals are required to disclose internet and catalog purchases and submit the tax. 5 percent actually obey the law, and the treasury is brutally candid in saying there is NO chance that action will be taken to collect these unpaid taxes of the other 95 percent. Meaning that there IS no law, here.
The feds refuse to think it through and act. The state won’t tackle it, but they would surely shut my stores down if we stopped collecting and passing on sales tax to our state coffers. So the truth is, we are the pack mules that provide insufficient revenue to keep our roads paved and bridges safe and so on, and other (internet) businesses that employ none, pay no other taxes and contribute nothing to our economy are allowed to siphon off capital that otherwise would be circulating and doing good for our state. This is the policy that I hear being defended here. We don’t have enough revenue to do what we need to do, and we refuse to simply collect what is due.
The issue, therefore, is not NEW internet taxation, but sales tax collection, applied FAIRLY to all that do business. All it takes to shut me up is to remove OUR tax responsibility to mirror Amazon’s and Alibaba’s, et. al. It isn’t going to happen, so it is deliberately unfair and it imperils the backbone of our state’s economy. It pointedly picks winners and losers, gives favor to one while enslaving the other. It’s insane, it’s intolerable, it’s reckless. Nobody wants to pay more taxes so they use specious arguments that don’t address the heart of the matter.
Personally, I won’t buy ANYTHING online that I can avoid or can get locally, because I see it as my responsibility to contribute to my local economy, and YES, pay the sales tax that enables my state to operate. It’s called citizenship and being a part of my community. It’s not heroic or self-righteous, it is simple business. Destroy the businesses of the countless towns in our state and the country and it will be much harder for my businesses to function. Countless towns throughout our state and others are struggling to various degrees, with shuttered businesses and lost micro-engines for their local economies. I just can’t be a part of that problem. And reading so many of the comments I see, failed local business is GOOD, having eliminated the weak links and strengthening the stronger.
Other people insist on buying as much as possible from the internet, depriving their towns and businesses of capital that could employ more people and pay more health care for them and allow the echo purchases that local spending fosters. They ALSO heroically avoid paying taxes and defend it with circular logic. They do so without a thought of what their dollars do, either way. They couldn’t care less, and THAT’S who our government panders to. God forbid we should lose the votes of tax dodgers, after all.
Local brick-and-mortar businesses aren’t struggling because of 6 percent sales tax. We’re struggling because in states where that 6 percent IS collected, Amazon’s sales are markedly lower. It DOES matter to people who buy solely on price, it DOES level the playing field some of the way. We’re struggling because government plays favorites against us. We’re struggling because of the trend toward national chains and internet sales, both of which take more or all of the capital out of our region and state. Our government should be alarmed by this and urgently working to save the golden geese across the land. But they don’t. Year after year, they just don’t. They don’t care, and they really just plain don’t understand how the whole thing works.
Competing on something other than price is tautological. It is imperative. It is what we seek to do (and DO) each and every day. We’re better than we’ve ever been. And it’s just not enough in the face of the biggest mass-shift in history. The shift of wealth from the lower and middle classes to classes higher is incredible, and not even being challenged as being real. Leaving so much less for the rest of us to try to be special with, effectively accelerating the trend in and of itself. Blithely asserting that weaker retailers will fail due to being poorly run in the face of this full-on assault for all the dollars available is obtuse. The point is that small business IS failing, is shrinking and that is hurting the economic power of the nation. Concurrent with weakening local businesses is diminishing pay scales and incomes for all BUT those that are winning the war (I have to get and read the book Plutocrats by Chrystia Freeland—I won’t get it from Amazon).
Obviously, all of this is imperiling and degrading my business in particular and is the immediate source of my alarm. But in this one case, it is NOT all about me. It is about something much bigger, more urgent and more inevitable. It is a subject matter that won’t be resolved in a column like this, but I never hear this point of view expressed. So forgive the long discourse, but I really AM alarmed.
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First of all, if 11 Main is an example of how Alibaba is going to market in the U.S., no one has anything to fear. I was actually shocked at how poor the product offering was.
Second of all, I really thought that Alibaba’s B2B offering (the actual alibaba.com site) would be a boon to small businesses. Prices are really good and you can buy small to large quantities of “stuff.”
Third of all, there is nothing to stop small retailers from using Alibaba (or 11 Main) as a marketplace, just like they do Amazon, Yahoo and Etsy.
Finally, no matter how many ways you slice it, store-based retail still generates 90 percent of retail revenue. I think retailers are waking up to the fact that Amazon is not their worst nightmare (recent RSR data is telling us that—very different from prior years).
If Main Street retailers mind their knitting and continue putting the customer and interesting products first, they should be able to take advantage of consumer sentiment and do well.
Boy that’s a tactic I don’t think is good. They are implying it’s the Chinese and their sneaky ways that are out to kill Main Street.
I support the marketplace fairness act, but the real ones who are blocking it are Republicans. And the ones who have the most to lose are the small businesses standing on the sidelines saying someone else needs to help us.
There is no Chinese company who is responsible for their success with this effort, it is the very merchants it is designed to help.
I see no difference between Alibaba and Amazon. In fact I see Alibaba as a competitor to Amazon and I believe it will in fact will help the small merchant by giving them an option over just having Amazon to deal with.
If Main Street is looking at the sales tax issue as what is going to put them out of business, then they are going out of business! They have to look at the trends in retailing. Online is not successful because they do or don’t charge sales tax. They are successful because they are online. The price competition presented by mass retail and big box is far more challenging than the issue of sales tax.
Here is my message to the Main Street retailer: You better find a way to attract customers with something other than price, because you will NEVER win on price.
Valid if it persists for the next several years, but at this point more a scare tactic as online retailers have been much more active collecting sales tax over the last few years. When Amazon capitulated, that was the sign that the free lunch would be coming to an end. If this doesn’t get voted on in 2015, we’ll have to see what a new administration brings in 2016, but if the pain levels rise high enough some relief will be forthcoming, in my opinion.
This is more of a scare tactic to protect poorly-run retailers. If a minor sales tax loophole is going to put your business under, it’s probably a poorly-run business to begin with. Well-run, good retailers will benefit if poorly-run retailers are forced out. This is similar to when high-paying retailers will promote a minimum wage increase. It doesn’t impact them but it impacts their low-wage competitors. On the flip side, are U.S. companies exploiting the Chinese market in any way?
Alibaba is no more guilty of exploiting U.S. sales tax situations than other channels of distribution or competition. Whether Congress will take a vote to change the tax laws applying to e-commerce is the actual question that should be asked.
At times it seems like sales taxes are as different and unique as snowflakes. Some communities have Back to School tax holidays, some charge sales tax for food and others don’t. Drive over a county line and find a different sales tax from the one you just left.
If Congress does tackle this Rubik’s Cube issue, they will have to address how and if the sales tax has to be applied, and which city, county and state portions are to be doled out by jurisdiction. The retail community of Main Street has to take this issue on, but there is no need to make Alibaba the fall guy.
I guess retailers/lobbyists are hoping that this tactic may have more impact now that they actually have a “red” herring to flog.
Good grief.
Consumers, especially e-commerce consumers, are tired of the extortionist levels of taxation that are imposed on the not-so-free markets. As previously mentioned by RetailWire’s discussion contributors, there are ways for retailers to become included in the “evils” of taxing free trade. Anyone wishing to increase market range and scope needs to get on board while the getting is good. Remember, business is all about the customer and the mainstay of retail customers will feel compelled to be in on any tax reductions and/or eliminations that are available.
More taxes. That’s what everyone who supports this “fairness” campaign is asking for.
“Fairness” in the bill title should be the first warning sign.
How many of us actively want more government regulation in our own industry? Then why should we support it for others?
Why would you ask for more taxes? Why would you ask for the feds to take over another state program? Why would you ask for the state’s legal/regulatory power to extend beyond its own borders, let alone national borders?
This campaign doesn’t prove the existence of a “loophole.” Rather, it shows the damage inflicted upon retail by regressive use-based taxation, specifically the sales tax.
We do need a state and national discussion about taxation. But the solution is not to extend the existing, problematic taxes even further.
I always find it interesting when people bring up the taxes as if we need to be taxed more. Instead of blaming the online retailer for being able to not charge people taxes, maybe governments should figure out how to operate without the need for sales taxes. I’ve worked in small and large retailers. When there is a tax-free holiday, sales go up! Sales go up so much so that without them, some retailers wouldn’t make money in Q3. Jobs are created, then people spend more money which helps the overall economy.
I have not heard a single consumer want to be taxed more. This is why you see stores in New Hampshire on the border make more money on Black Friday than stores in Concord or Manchester, because all the people from Maine and Massachusetts are going over the border to buy products without taxes. It’s not internet retailers that are the bad guys here, it’s the taxing policies of state governments. Will Alibaba destroy Main Street? No, I’ve shopped there and didn’t buy anything because it’s not my kind of experience. Now if governments continue to hurt small businesses with taxes, then that may help drive sales away from small businesses.
“Solving” a competitive disadvantage with taxes is the first sign that the debate is off track. But even if charging more tax did provide a solution, the cure is worse than the condition. Problems with the Marketplace Fairness Act are myriad, including:
1. Commercial consequences
2. Governance problems
As the convincing arguments above indicate, this is a bigger issue than taxes. It’s not just Alibaba or Amazon but an entire new class of competitors from eBay to Craigslist, from large enterprises to individuals, from domestic to offshore, that are redefining Main Street. The real answer is how to compete with the cost advantages, not the tax advantages. But that is a topic for another RetailWire discussion.
Bricks and mortar stores can not change the tax code, and this fight for small businesses like mine is wasting precious time. I know what is needed to survive, and even knowing what to do doesn’t guarantee success.
What is the strength of small business? The people who represent your store is first and foremost the biggest asset we have. Secondly, finding ways to create new items, or new ways to merchandise your product line is critical.
Having the trust of several great vendors will keep the promotion pipeline full, and making sure your community knows who and what you are through social media and networking is something that needs to be done daily.
The reason many of us hate big corporations (lousy service, excess fees, no contact with a real human being), is what we as small businesses should do WAY better than the big boys, and if you can do it properly, the niche you are carving out will sustain and help grow your bottom line. This is not easy, but what is? Keep the faith my small business friends, and happy selling!
As an owner of a small business (two stores in a Main Street USA environment), I am flabbergasted that the state of Michigan foregoes massive revenue from all the tax collections lost. By law, individuals are required to disclose internet and catalog purchases and submit the tax. 5 percent actually obey the law, and the treasury is brutally candid in saying there is NO chance that action will be taken to collect these unpaid taxes of the other 95 percent. Meaning that there IS no law, here.
The feds refuse to think it through and act. The state won’t tackle it, but they would surely shut my stores down if we stopped collecting and passing on sales tax to our state coffers. So the truth is, we are the pack mules that provide insufficient revenue to keep our roads paved and bridges safe and so on, and other (internet) businesses that employ none, pay no other taxes and contribute nothing to our economy are allowed to siphon off capital that otherwise would be circulating and doing good for our state. This is the policy that I hear being defended here. We don’t have enough revenue to do what we need to do, and we refuse to simply collect what is due.
The issue, therefore, is not NEW internet taxation, but sales tax collection, applied FAIRLY to all that do business. All it takes to shut me up is to remove OUR tax responsibility to mirror Amazon’s and Alibaba’s, et. al. It isn’t going to happen, so it is deliberately unfair and it imperils the backbone of our state’s economy. It pointedly picks winners and losers, gives favor to one while enslaving the other. It’s insane, it’s intolerable, it’s reckless. Nobody wants to pay more taxes so they use specious arguments that don’t address the heart of the matter.
Personally, I won’t buy ANYTHING online that I can avoid or can get locally, because I see it as my responsibility to contribute to my local economy, and YES, pay the sales tax that enables my state to operate. It’s called citizenship and being a part of my community. It’s not heroic or self-righteous, it is simple business. Destroy the businesses of the countless towns in our state and the country and it will be much harder for my businesses to function. Countless towns throughout our state and others are struggling to various degrees, with shuttered businesses and lost micro-engines for their local economies. I just can’t be a part of that problem. And reading so many of the comments I see, failed local business is GOOD, having eliminated the weak links and strengthening the stronger.
Other people insist on buying as much as possible from the internet, depriving their towns and businesses of capital that could employ more people and pay more health care for them and allow the echo purchases that local spending fosters. They ALSO heroically avoid paying taxes and defend it with circular logic. They do so without a thought of what their dollars do, either way. They couldn’t care less, and THAT’S who our government panders to. God forbid we should lose the votes of tax dodgers, after all.
Local brick-and-mortar businesses aren’t struggling because of 6 percent sales tax. We’re struggling because in states where that 6 percent IS collected, Amazon’s sales are markedly lower. It DOES matter to people who buy solely on price, it DOES level the playing field some of the way. We’re struggling because government plays favorites against us. We’re struggling because of the trend toward national chains and internet sales, both of which take more or all of the capital out of our region and state. Our government should be alarmed by this and urgently working to save the golden geese across the land. But they don’t. Year after year, they just don’t. They don’t care, and they really just plain don’t understand how the whole thing works.
Competing on something other than price is tautological. It is imperative. It is what we seek to do (and DO) each and every day. We’re better than we’ve ever been. And it’s just not enough in the face of the biggest mass-shift in history. The shift of wealth from the lower and middle classes to classes higher is incredible, and not even being challenged as being real. Leaving so much less for the rest of us to try to be special with, effectively accelerating the trend in and of itself. Blithely asserting that weaker retailers will fail due to being poorly run in the face of this full-on assault for all the dollars available is obtuse. The point is that small business IS failing, is shrinking and that is hurting the economic power of the nation. Concurrent with weakening local businesses is diminishing pay scales and incomes for all BUT those that are winning the war (I have to get and read the book Plutocrats by Chrystia Freeland—I won’t get it from Amazon).
Obviously, all of this is imperiling and degrading my business in particular and is the immediate source of my alarm. But in this one case, it is NOT all about me. It is about something much bigger, more urgent and more inevitable. It is a subject matter that won’t be resolved in a column like this, but I never hear this point of view expressed. So forgive the long discourse, but I really AM alarmed.