Chances are American online shops will become subject to VAT

Chances are American online shops will become subject to VAT

If the American House of Representatives follows its Senate, most American online shops will become subject to VAT. With this new legislation, the United States wants to make an end to the competitive advantage pure players have had for years over classic or multi-channel retailers.

“Marketplace Fairness Act”

At the moment American states can only impose VAT on shops with a physical location on their territory, such as a shop, an office or a warehouse. Each state can decide on its own how high the VAT is: some charge none, while in other states it can be as high as eight percent. Nonetheless, pure online shops without a physical location have always escaped VAT.

 

Not only big retail chains have been fighting against what they call “distortion of competition”, but also a pure player as Amazon, with distribution centres in many states and subject to a different VAT in almost every one of them, is asking for more uniformity.

 

Notorious opponents are among others eBay and Overstock.com, internet companies who barely have to pay any VAT. Other opponents are smaller companies, who fear they will drown in the administration that comes with all this.

 

New legislation earns governments billions

The new legislation, which was approved by a majority in the Senate earlier this week, gives each state the possibility to go directly to online shops - even those without a physical location on their territory - to charge VAT for every order they deliver in the state.

 

Some retailers with less than one million dollar in sales from distance sales could be exempt from the tax. Based on online sales of 2012, the new law would get the states about eleven billion dollar of new earnings.

 

Tackle VAT inequality

The National Retail Federation, America’s biggest retail federation, is very pleased and thanks the senators “for standing with local retailers and America’s small business owners. Today’s action in the Senate is a significant step for sales tax fairness”, said the NRF president Matthew Shay.

 

“Retailers compete for customers on many different levels, distribution channels and fronts, including service and selection, but they cannot compete on sales tax. Congress needs to address this sales tax disparity and allow retailers to compete freely and fairly. Retailers of all shapes, sizes and channels deserve a level playing field”, said Chairman of NRF Stephen Sadove.

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