I have been observing with great interest an email debate that has been taking place between some colleagues of mine in the aftermarket. Several friends who are parts distributors have gotten pretty worked up over something they see as an inequity that exists in the marketplace.
The issue that has sparked the debate is the “exemption” that Internet retailers have from charging sales tax in most states. Since sales tax is a state-by-state issue and there is no national sales tax (at least not as of the time of this writing), brick and mortar distributors who sell against Internet sellers are in fact at a disadvantage. Because tax rates vary from a low in Colorado of 2.9 percent to the high in California of 8.25 percent, online sellers effectively have a 3 percent to 9 percent price advantage, depending on the state the part is being shipped to. As one of my friends said in frustration, “That’s just what I need, another 800 pound gorilla that not only buys better, but has an 8 percent advantage on the total ticket.” I should note that five states have no sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.
I was feeling the pain of my distributor friends and followed their debate with much compassion and great interest. They argued that they were up against an unlevel playing field created by government imposition. But then the conversation took a turn that created a philosophical quandary for me. The “fix” to the problem they proposed was passing either local laws on a state-by-state basis to start collecting the same level of sales tax on Internet sales, or a national tax on all Internet sales. Those of you who regularly read this column know that I am not a fan of government intervention in business, or of taxes of any sort.
Hence my dilemma. I truly empathize with my small-business friends who face myriad forms of competitors with both price and cost advantages. These people were instrumental in building this aftermarket. They nurtured national brands into what they are today by developing and coddling enthusiasts and tradesmen who buy those brands.
But “leveling the playing field” by sending more of our money to state capitols or to Washington seems a bitter pill to take as a cure. I needed to think more about this before I could weigh in.
A corollary that came to mind was a dilemma faced by many aftermarket manufacturers in the last decade: knock-off parts made in low-cost countries (LCC) and being sold under the same or similar part numbering systems as the branded product. With little or no cost for research and development, data management or cataloging, the LCC lines could sell for as much as 30 percent less than the locally-made product. There were many manufacturers who felt the fix to that problem was through the government. They registered complaints with regulators or asked Congress to impose tariffs. Like most things with our government, those fixes were ineffective.
I thought more about the predicament of my friends and the solution they proposed. Were this any other form of tax increase that might be imposed on some aspect of the aftermarket, say an increase in gasoline tax, they would be rallying against it. Their support for this particular type of tax was really intended to punish a competitor who enjoyed an advantage by the simple luck of the draw.
So what are their options? Again, I thought of those manufacturers who were faced with LCC products and how they ultimately fought back. In their cases, most took advantage of the same thing that gave their new competition their initial leg up. That is, they began making parts in LCCs and not looking to the government to punish their competitors with taxes or tariffs.
I concluded that my friends had to fight back using the same loophole that their competitors enjoyed; specifically, selling through the Internet.
Let’s just say that my position was not warmly received by my friends. They were quick to point out some major chinks in my logic. But those are issues that require more thought and research and will be discussed in the future. For now, I stand with my initial position. Fixing a market inequity though additional government intervention by taxation is not the way to go. What say you?
I have been observing with great interest an email debate that has been taking place between some colleagues of mine in the aftermarket. Several friends who are parts distributors have gotten pretty worked up over something they see as an inequity that exists in the marketplace.
The issue that has sparked the debate is the “exemption” that Internet retailers have from charging sales tax in most states. Since sales tax is a state-by-state issue and there is no national sales tax (at least not as of the time of this writing), brick and mortar distributors who sell against Internet sellers are in fact at a disadvantage. Because tax rates vary from a low in Colorado of 2.9 percent to the high in California of 8.25 percent, online sellers effectively have a 3 percent to 9 percent price advantage, depending on the state the part is being shipped to. As one of my friends said in frustration, “That’s just what I need, another 800 pound gorilla that not only buys better, but has an 8 percent advantage on the total ticket.” I should note that five states have no sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.
I was feeling the pain of my distributor friends and followed their debate with much compassion and great interest. They argued that they were up against an unlevel playing field created by government imposition. But then the conversation took a turn that created a philosophical quandary for me. The “fix” to the problem they proposed was passing either local laws on a state-by-state basis to start collecting the same level of sales tax on Internet sales, or a national tax on all Internet sales. Those of you who regularly read this column know that I am not a fan of government intervention in business, or of taxes of any sort.
Hence my dilemma. I truly empathize with my small-business friends who face myriad forms of competitors with both price and cost advantages. These people were instrumental in building this aftermarket. They nurtured national brands into what they are today by developing and coddling enthusiasts and tradesmen who buy those brands.
But “leveling the playing field” by sending more of our money to state capitols or to Washington seems a bitter pill to take as a cure. I needed to think more about this before I could weigh in.
A corollary that came to mind was a dilemma faced by many aftermarket manufacturers in the last decade: knock-off parts made in low-cost countries (LCC) and being sold under the same or similar part numbering systems as the branded product. With little or no cost for research and development, data management or cataloging, the LCC lines could sell for as much as 30 percent less than the locally-made product. There were many manufacturers who felt the fix to that problem was through the government. They registered complaints with regulators or asked Congress to impose tariffs. Like most things with our government, those fixes were ineffective.
I thought more about the predicament of my friends and the solution they proposed. Were this any other form of tax increase that might be imposed on some aspect of the aftermarket, say an increase in gasoline tax, they would be rallying against it. Their support for this particular type of tax was really intended to punish a competitor who enjoyed an advantage by the simple luck of the draw.
So what are their options? Again, I thought of those manufacturers who were faced with LCC products and how they ultimately fought back. In their cases, most took advantage of the same thing that gave their new competition their initial leg up. That is, they began making parts in LCCs and not looking to the government to punish their competitors with taxes or tariffs.
I concluded that my friends had to fight back using the same loophole that their competitors enjoyed; specifically, selling through the Internet.
Let’s just say that my position was not warmly received by my friends. They were quick to point out some major chinks in my logic. But those are issues that require more thought and research and will be discussed in the future. For now, I stand with my initial position. Fixing a market inequity though additional government intervention by taxation is not the way to go. What say you?
