Retailers and financial institutions prepare for new debit interchange legislation in the United States while several state governments try to diminish deficits by finding new sources of revenue: an internet sales tax. Meanwhile, in the European Union changes to the Consumer Rights Directive double the amount of time consumers have to return goods.
Capping Debit Interchange Since December, 2010 the Durbin Amendment, which originally sought to cap debit interchange fees at 12 cents per transaction, has been getting lots of attention. After months of debate and missing the original deadline to set the final ruling, a 21 cent debit interchange cap was decided in late June, 2011. The Federal Reserve, who was given the task of setting a cap reflective of the costs of processing debit cards, concluded that 21 cents should be accounted for the issuer’s costs to conduct the transaction and allowed for an additional charge of 0.05 percent of the transaction amount to account for risk. Issuers who comply with fraud protection policies, which are still being determined, will be allowed to charge an additional 1 cent. These changes are to go into effect October 1, 2011.
While consumers could potentially see lower costs in stores as a result of the debit interchange cap the American Bankers Association and others have eluded that merchants may not pass on the savings to their customers, furthermore consumers stand to be hurt by the ways banks will recoup the loss profit resulting from the cap of 21+ cents. The NAACP issued a statement expressing concern that even more low income and minority consumers would be left unbanked resulting from the end of free checking accounts and increased banking fees.
The Durbin Debit Cap will have far reaching effects into the banking and retail industries and affect most all of U.S. commerce, but little has been mentioned as to how it would pertain specifically to eCommerce. Javelin estimates that 29 percent of online retail and travel purchases are made with a debit card. That being said, online merchants stand to save a substantial amount of money as their cost of accepting debit cards declines from an average of 44 cents per transaction to now less than a quarter.
Taxing eCommerce
The Internet Tax Freedom Act of 1998 states that merchants are not required to collect sales taxes if they do not have a physical presence in the state the where the customer has purchased an item or is having it shipped. It is, however, up to the consumer to document the money spent online that was not subject to sales tax, and pay the equivalent in what is then called use tax. Use tax is not a well known term or concept and the National Conference of State Legislatures (NCSL) estimates use tax not collected to be $8.6 billion in 2010. As most states cope with budget constraints the use tax is gaining more attention as a potential source of income. To aid residents in paying their fair share of taxes many states are enacting a statute dubbed the Amazon law. In 2008 the state of Colorado made it a legal requirement for online merchants to calculate the sales tax on every transaction and to tell each customer how much they owe the state. Additionally the merchants are to inform the state on who made purchases and how much was spent so the state knows how much to expect and from whom. New York, North Carolina and Rhode Island have since enacted their own similar laws and many more states are expected to follow suit.
Effects from an internet sales/use tax include increased costs to online retailers from sending statements to states and customers, as well as harm to the reputation that online shopping has better deals than in-store retail. The Internet Tax Freedom Act, which prevents the implementation of new tax policies for online sales, stays in effect until 2014. However the act has no effect on so called Amazon laws which place measures to increase the revenue collected from the preexisting use tax.
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