Will Decisions On Net Neutrality, Online Sales Tax Spell Trouble For SMBs?
Two developments within the last two weeks could create potential roadblocks for small- and medium-sized businesses (SMBs) within retail, particularly those operating exclusively online:
- The repeal of net neutrality rules, which could create a multi-lane Internet where content providers and retailers have to pay extra for better service, faster load times, etc.; and
- The U.S. Supreme Court ruling on sales tax collection, essentially letting the states tax a company making sales to consumers even if they don’t have a significant physical presence in the state.
The RTP team discusses whether the two government decisions spell trouble for SMBs, particularly as larger retailers continue to grow and consolidate. The editors also share their thoughts on the potential impact on innovation if the marketplace becomes too difficult for smaller companies to maneuver.
Debbie Hauss, Editor-in-Chief: It’s a very complicated time for retailers, to say the least. While they’re trying to compete with Amazon, create a better omnichannel presence and stay up-to-speed on the latest new technology, they now have to be concerned about diminishing profit from tax burdens and Internet challenges. I do think that the brick-and-mortar retailers had a strong argument in asking that e-Commerce retailers collect taxes, but it will put an additional burden on those businesses. They’ll have to decide whether to eat a portion of the taxes or raise prices to their consumers. And they’ll need to find an effective way to communicate the changes to their consumer base. Net neutrality, on the other hand, simply seems like an unfair advantage for larger companies. It just won’t be acceptable to consumers to have to wait even a few extra seconds for a page to load. So the smaller companies will need to pay up or suffer the losses.
Adam Blair, Executive Editor: It’s becoming increasingly clear that the Trump administration, along with the federal judiciary, is pro-business — as long as it’s BIG business. The end of net neutrality, for example, could limit high bandwidth and fast downloads only to those that can afford to pay for premium services. (It’s ironic that this is occurring just as a generation is coming of age that has never had to deal with the agony of dial-up doldrums.) Additionally, two recent Supreme Court rulings spell trouble for retailers with limited resources. The sales tax decision subjects e-Commerce retailers to these taxes even if they don’t have a significant physical presence within a jurisdiction. This will cost retailers not just money but an even more valuable commodity: the time needed to manage a vastly more complicated tax regimen. The American Express swipe fee decision means that interchange rates are unlikely to come down any time soon, leaving small retailers with the no-win choice of charging higher prices or refusing to accept Amex as a payment method. The message to small retailers seems pretty clear: Go Big, or Get Lost.
Glenn Taylor, Senior Editor: While these government decisions don’t help SMBs, I believe that top innovators always find themselves able to push through, despite the potential barriers that may be thrown their way. Innovation is so consumer-driven at this point that SMBs are given more incentive to think outside the box, particularly if they have to collect more taxes. Retailers need to follow the consumer regardless of how tough things get — people always talk about Amazon’s rise as a death knell to everyone under the sun, yet many small retailers made a name for themselves by innovating in an environment that doesn’t always favor them. I was totally against the net neutrality repeal, but I do think that from an e-Commerce perspective, there would be too much consumer and retailer backlash alike for the ISPs to create priority lanes that impede the ability to make sales.
Bryan Wassel, Associate Editor: The repeal of net neutrality and the ruling on sales tax collection aren’t positive developments for SMBs, but they won’t be the end of them either. Many consumers buy from small retailers because they like the quality of the product or feel a strong connection with the brand. The most loyal customers likely won’t be put off by paying a few percent more on their order. As for net neutrality, it’s likely that the decision won’t be permanent: a poll from the University of Maryland’s Program for Public Consultation found 83% of respondents opposed its repeal, including 75% of Republicans. Reinstating the practice would be an easy, popular fix for a future administration, and ISPs aren’t likely to make any immediate moves for fear of the potential backlash.