Trump’s tax attack on Amazon is bad for small businesses

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President Donald Trump says he is a champion of business, cutting taxes and implementing new rules that he claims benefit America’s businesses. But when it comes to his recent threats to Amazon, he may be doing the complete opposite: creating a costly nightmare for the third-party small businesses that operate on Amazon’s platform.

Amazon (AMZN) collects sales taxes for products it sells directly to consumers, while most third-party sellers on Amazon marketplace only collect taxes in the states that they have a physical presence in, as required by a 1992 U.S. Supreme Court ruling. Most third-party sellers are so small that they only have a brick-and-mortar facility in their hometowns.

On Thursday, Trump again accused Amazon of not paying enough sales tax. “They are not on an even playing field,” Trump told reporters on Air Force One, according to CNBC. “The playing field has to be level for everybody.” He added the sales tax situation would soon be looked at by the Supreme Court, “so we’ll see what happens.”

An attack on Amazon is an attack on mom-pop businesses

His comments come as more states express anger over “billions in lost revenue annually.” Amazon now shares sellers’ information with local taxing authorities under new state laws in Massachusetts and Rhode Island, raising fears among third-party sellers that the states will come after them for sales tax.

This month, the Supreme Court is scheduled to hear arguments from officials in South Dakota who contend the 1992 ruling is obsolete in the e-commerce era. If South Dakota wins, every online retailer will be required to collect sales tax regardless of where they have a physical presence. And that could be a nightmare for small businesses that sell products on Amazon.

“I think a lot of lawmakers don’t understand that they think they’re going after Amazon. Who they’re really hurting in the fallout is smaller online businesses like mom-pop businesses that really drive the economy,” Jennifer Dunn, chief of content at TaxJar, a sales tax compliance software for online businesses, told Yahoo Finance.

In fact, analysts at PiperJaffray say if the 1992 rule is overturned, it may end up doing Amazon a favor. If states collect taxes, third-party sellers on Amazon would have to increase product prices which may drive consumers to buy items that are sold directly by Amazon.

New sales tax rules could mean more revenue for Amazon

It is extremely difficult for third-party sellers to figure out tax codes and filing requirements, which vary by state and county. For a small business, it’s an overwhelming administrative hassle, so a lot of them just choose not to charge a sales tax.