US Senate gives online retailers the cold shoulder

00:42, Jun 11 2013

Two thousand leather clad souls gathered in Central Otago last weekend for the 33rd Brass Monkey Motorcycle Rally. This mercurial cocktail of people, motorcycles, geography and weather makes for unpredictable outcomes and adventure aplenty.

The 18 Monkeys I've completed have included temperatures of 11 below freezing, getting snowbound on the Hakataramea Pass and attempting a gearbox rebuild on a Benelli Tornado on the Haast Pass in torrential rain. The dominant theme this year was wind.

Driving westerlies created havoc with riders blown off the road in the McKenzie Country and the Omakau Road. Police put on a special escort to get a group of 400 bikers safely to Alexandra and two bikers were airlifted to Dunedin Hospital after being buffeted into a gully, bikes and all.

As well as the superb opportunity for immersion in the graceful harshness of Central Otago's landscape, the Monkey provides a great set of data points about the human condition gleaned from discussions around the 44-gallon drum campfires set along the Idaburn Dam. One theme this year was the sheer volume of parts and kit that is being bought online and offshore.

Motorcycle enthusiasts can buy brake pads, clutch kits, gloves and the like for less than half what they'd pay in their local stores. And offshore retailers are getting noticeably better at servicing global buyers. A rider in our group bought a stylish Bell helmet out of the United States and when she found it didn't fit correctly, the Massachusetts-based store couriered a replacement within four days. Not bad.

One of the factors tilted in American online retailers' favour is local US sales tax which they avoid, allowing them to deliver lower prices to the consumer. As well as making it tough for Kiwi retailers, this has also got up the noses of the likes of Walmart, JC Penney and Macy's. These companies have been actively lobbying the Federal Government to create a level playing field. Last week they got their wish when the Senate passed a measure compelling online retailers to collect sales tax.

Now the legislation must head to the House of Representatives for final approval, something most online retailers will be dead against. The two giants of the eCommerce world - eBay and Amazon - have performed a tight double act on this issue for a decade, strongly advocating against requiring online retailers to charge sales tax unless they had a physical office in a state. However, Amazon's decision to grow its tentacles into the shipping business, and set up distribution centres in each state saw it swap sides in the debate last year.

The former stablemates are in a pitched battle against one another. To bolster its argument eBay has turned to its core constituency for support and written to its 150+ million buyers and sellers telling them that it's a battle in which consumers and small businesses will be the losers. In the letter, eBay CEO John Donohoe calls the legislation wrongheaded and unfair, and asks for members' to voice their displeasure to Congress about ensuring healthy competition and consumer benefits.

Whether it will force a u-turn at the House of Representative level is hard to say. I think it's likely to pass, but eBay will be successful in getting a decent-sized exemption for smaller online retailers. Ebay have suggested that online retailers with revenue under $10m or employing less than 50 people should be exempt. There's probably some gaming in that number so a more likely final size of exemption will be more like $3m-$5m or headcounts of less than 25.

Big retailers in New Zeland and Australia will be watching this outcome with interest as they see more of their sales head Stateside, thanks in part to local arrangements around "tax de minimis", the value of offshore goods a person can buy before they must pay GST or duty. In New Zealand that level is $400 while across the ditch it's $1000. While it has hurt New Zealand retailers somewhat, it's absolutely savaged their Australian counterparts as Amazon and eBay have carried out million dollar advertising campaigns urging Aussies to send their strong dollar offshore.

Two years ago, Customs minister Maurice Williamson reviewed New Zealand's de minimis and chose to leave it at $400, noting that the resourcing of a lower threshold would increase compliance costs and impact on priority risks like illicit drugs. However, as part of the broader look into whether the tax system has kept pace with the internet, it's likely the de minimis will be reviewed again.

Around the fire at the Brass Monkey, a motorcycle dealer made an interesting observation: " As bike parts and accessories have become just another global commodity, I've moved my business more into servicing. It's pretty tough to buy a tappet adjustment on the web."

I reckon he's got a point.

Mike "MOD" O'Donnell is an eCommerce manager and professional director. His Twitter handle is modsta and he's never owned a pair of motorcycle gloves that didn't leak.