Brick-and-mortar retailers are growing increasingly concerned about Alibaba Group, the Chinese e-commerce company that had the largest initial public offering ever in September. The Alliance for Main Street Fairness, a coalition of business owners that supports the Marketplace Fairness Act, released an ad Sunday that calls on Congress to require online retailers to collect state sales tax. “Thanks to the online sales tax loophole, this Chinese company will decimate our local retailers,” the ad said of Alibaba.
The Alliance for Main Street Fairness is trying to argue that Alibaba is bad for the United States economy, especially because of its ability to sell goods to Americans without collecting sales tax. However, Alibaba.com, the primary company of the Alibaba Group, is not a bigger, Chinese version of Amazon. Rather, Alibaba.com is a business-to-business service, connecting wholesale buyers and suppliers around the world, including the United States.
For example, a local pet store owner in Virginia could go on Alibaba.com and contact a small supplier in Illinois about purchasing 200 bags of dog food, which it could then re-sell to local Virginia dog owners. Unlike Amazon, a dog owner could not order food for his individual dog, since the Illinois supplier has set a minimum order of 200 bags. And if a dog owner purchased one bag of that dog food at the Virginia pet store that acquired the goods through Alibaba.com, he would still pay Virginia sales tax. Alibaba.com even has a U.S. channel where verified suppliers in the U.S. can sell to buyers around the world.
The Alliance for Main Street Fairness claims that “Alibaba has no connection to the United States. No warehouses. No factories. No offices. No distribution centers.” But 11 Main, an Alibaba Group company launched in June, is headquartered in San Mateo, Calif. Similar to Alibaba.com, 11 Main exists to connect consumers to small businesses, although 11 Main’s consumers are typically individuals, not other small businesses.
AliExpress, an Alibaba company launched in 2010, is the real legitimate concern for brick-and-mortar retailers for its similarity to Amazon. AliExpress is supposed to enable “consumers from around the world to buy directly from wholesalers and manufacturers and China and have access to a wide variety of products at wholesale prices.” AliExpress is similar to shopping at Costco, except membership is free, there’s more variety, everything is online and the sellers are from China.
Such formidable competition can be rough on brick-and-mortar retailers, but it’s great for American consumers looking to save. Every American is a consumer, and only a few Americans are brick-and-mortar retailers. Even so, online competition won’t put brick-and-mortar retailers entirely out of business. Some retailers will shift into online-only retail sites such as 11 Main and Etsy. Some consumers still prefer to shop by foot rather than online and will keep visiting brick-and-mortar stores even when cheaper prices are available online.
The Washington Examiner spoke with Joshua Baca, a spokesman for the Alliance for Main Street Fairness. Baca said, “Competition is very much welcome, it just should occur on a level-playing field where one side isn’t given some sort of artificial price advantage over another. … There is a loophole in the tax code that gives companies like Alibaba the ability to exploit that and give an artificial price advantage to consumers, which isn’t fair.”
Representatives from 11 Main did not immediately reply to inquiries about its tax payments or the U.S. connections of its affiliates.
Though it is advantageous for Alibaba that the company does not have to collect sales tax, it is better for the American consumers that spend money there.
