We are about to witness what could be one of the most significant tests in recent memory of the impact mobilization of the crowd has on policy makers’ all levels need to raise revenues. And what a crowd this potentially could be.

As widely reported, eBay, Inc. CEO John Donahoe began e-mailing millions of users of the company's online marketplace over the past weekend regarding his views and what he believes is at stake for his users in the proposed changes to federal sales tax legislation. This is the start of a rolling thunder campaign. He is likely to ask all of eBay’s (News - Alert) 40 million users to help strong-arm legislators to find another way to generate revenue.

Why all the agitation? As is typically the case, it can be summed up in one word: MONEY. 

States that are heavily reliant on sales taxes to fund their operations for years have been watching what they believe is sales tax avoidance. Online transactions, if conducted with an entity not in the same state as where the purchaser lives, are considered to be out-of-state transactions and thus are not subject to state sales tax. The argument has been that to foster the growth of online business such transactions should not be taxed. However, the recession and the fact that online purchases are a big business, even when conducted by millions of small business people, have caused lawmakers to take another look. 

This look comes in the form of legislation called the “Marketplace Fairness Act.” The “fairness” in the title is about leveling the playing field between the online and physical worlds regarding the payment of state sales taxes. The legislation, due to be voted on by the U.S. Senate in the next few days, gives states the power to compel retailers outside their borders to collect online sales tax. As noted, the status quo is that states can only require merchants with a physical presence within their borders to collect such taxes.

The fact is that a vast majority of the merchants on popular auction sites – and, for that matter, with their own ‘Net presence -- are small business people. In an attempt to avoid the wrath of the crowd, the sponsors of the legislation have proposed an exemption for merchants that generate less than $1 million in annual out-of-state revenue. This, in Donahoe’s eyes, is still too burdensome and his e-mail campaign is asking eBay merchants to e-mail their Representatives asking for changes. The big one is a request that merchants with less than $10 million in annual out-of-state sales or fewer than 50 employees should be exempt.  

As noted above, this is about money and everyone’s perspective on “fairness.”  There is an old saying in the U.S. that, “Where you stand depends on where you sat.” Fairness, thus, is in the eye of the beholder, and clearly it is a moving target. A quick look at why is telling.

Donahoe, in his first email, is annoyed about archrival Amazon’s support of the legislation. As reported widely in various places, the e-mail states, "This legislation treats you and big multi-billion dollar online retailers -- such as Amazon -- exactly the same.Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer." He went on to say that since Amazon generates more than $10 million in sales every 90 minutes, it has the ability to collect sales taxes in every state where it does business, which is a luxury small merchants cannot afford. He knows his base and this argument is going to exorcise their angst about the excise. He has a point to a certain extent, but the states also have a point on the tax-avoidance issue. This is just another cost of doing business and in “fairness” to their citizens and in support of vital services, this is going to come down to who really has the clout in terms of electoral calculations. 

For most people, this is not likely to be a cutting-edge issue, and if faced with the prospect of further budget cuts and a well-funded campaign to paint eBay as on the wrong side of the fairness issue, it is safe to say eBay is going to have it work cut out for it to stop the legislation.   Plus, from a purely practical standpoint, not having Amazon on its side hurts its cause in what, from a political standpoint, might be fatal.  

There is also a business reason that is at work. The reality is that Amazon, as a big retailer, does not wish to see smaller retailers being able to undercut its pricing power via an exemption. It is why, in an earlier version of the legislation, Amazon supported an exemption of $500,000, i.e., below the current $1 million threshold, as opposed to eBay’s desires to make it much higher since it is they are not a mass merchant themselves. 

The speculation is that eBay’s biggest concern is that its smaller merchants, faced with the additional cost of collecting sales tax, will flee to Amazon in order to survive because Amazon offers such amenities as warehouse storage, order fulfillment and shipping. Smaller merchants know their economic interests and in a calculation of eBay vs. Amazon, eBay’s fears are likely to be well founded.

For all of the above this is why finding “fairness” is so hard in these kinds of battles. It is complicated.

eBay is pulling out all the stops

This is not the first time eBay, as they say in the movie The Godfather, has, “Gone to the mattresses.” Former CEO Meg Whitman in 2006 tried to rally the troops on net neutrality. As we know, that one is still a minefield for whoever becomes the next FCC (News - Alert) head.  

That campaign involved e-mails to what, by comparison to the Donohue effort, was a paltry 10 million eBay merchants. "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."

It is true that one should never underestimate the wisdom or power of the crowd.  However, this may be a case where it depends on which crowd—the eBay merchant crowd, or the crowd who does not want to see services cut and higher local taxes. Washington, D.C. politicians know how to count two things: money and votes. Even if eBay gets a concentrated effort from a lot of its members, if it looks like it will not cost somebody campaign contributions or their seat, and will enable local pols to make up for continuing revenue shortfalls, eBay may find it is facing a really hard sell, and there is where not have Amazon as an ally hurts the most. However, you have to admire eBay for trying.