EXCLUSIVE - EBay recruits users in push against sales tax legislation

SAN FRANCISCO Sun Apr 21, 2013 7:12pm IST

The results of a Google image search on Ebay are shown on a monitor in this photo illustration in Encinitas, California, April 16, 2013. REUTERS/Mike Blake

The results of a Google image search on Ebay are shown on a monitor in this photo illustration in Encinitas, California, April 16, 2013.

Credit: Reuters/Mike Blake

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SAN FRANCISCO (Reuters) - EBay Inc (EBAY.O) Chief Executive John Donahoe began emailing millions of users of the company's online marketplace on Sunday in an unprecedented lobbying effort to change looming Federal sales tax legislation.

The e-commerce giant plans to send emails from Donahoe to at least 40 million eBay users, including most sellers on the marketplace. The first messages were sent out Sunday morning.

In the emails, Donahoe said the legislation, known as the Marketplace Fairness Act, unfairly burdens small online merchants and asked eBay users to send an email message to members of Congress asking for changes.

The legislation, due to be voted on by the Senate in coming days, gives states the power to compel retailers outside their borders to collect online sales tax. Currently, states can only require merchants with a physical presence within their borders to collect.

The legislation includes an exemption for merchants that generate less than $1 million in annual out-of-state revenue.

Donahoe argued in the emails that merchants with less than $10 million in annual out-of-state sales, or fewer than 50 employees, should be exempt. Reuters viewed copies of the emails.

In emails to eBay sellers, Donahoe singled out Amazon.com Inc (AMZN.O), eBay's main rival, which supports the current legislation.

"This legislation treats you and big multi-billion dollar online retailers - such as Amazon - exactly the same," Donahoe wrote. "Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer."

Amazon generates more than $10 million in sales every 90 minutes, giving the world's largest Internet retailer more resources than a typical small merchant to collect sales tax in all states, Donahoe argued.

EBay has tapped its users in a major way once before. In 2006, when Meg Whitman was CEO, she emailed users about the issue of net neutrality and the need to keep the Internet open. In that effort, Whitman emailed fewer than 10 million users.

"It's the biggest grass-roots effort by eBay ever," said Brian Bieron, senior director of global public policy at eBay. "It's coming to a head in Congress and now's the time to give our users the opportunity to share their thoughts."

The scope of eBay's lobbying effort suggests the company may have more to lose than Amazon if the legislation becomes law in its current form.

Amazon supported a $500,000 annual sales exemption in an earlier version of the legislation, arguing that anything higher would give too many small online sellers an unfair tax advantage over larger retailers.

Amazon also runs a popular marketplace for online sellers, however eBay is still particularly popular with small sellers.

Wayne Johnson, who runs fly fishing retailer Anglers Habitat in Caldwell, Idaho, generates about $2.5 million in annual sales on eBay.

If the legislation passes in its current form, Johnson said he would re-organize his business to get annual out-of state online sales below the $1 million threshold.

That would involve laying off most of his staff, which currently consists of eight full-time employees and an accountant, he said.

More worryingly for eBay, Johnson said he would start selling through Amazon's marketplace because Amazon handles warehouse storage, order fulfillment and shipping.

Amazon charges extra fees for these services, meaning Johnson's business may be less profitable, but he said he would be able to keep running the online operation with very few staff.

"That's where I would go if this bill passes," Johnson added. "I could do that business with just my son and me."

(Reporting by Alistair Barr; editing by Andrew Hay)

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