Will Alibaba Help or Hurt U.S. Retailers?

Alibaba has become the target of the latest political ad from the Alliance for Main Street Fairness — a spot previously held by Amazon.

This 30-second radio and TV spot ad from the organization, which includes retailers like Best Buy, Target and JCPenney, claims that a "sales tax loophole" is giving the Chinese e-Commerce giant a boost above the brick-and-mortar retailers. Simply put, the ad says "Tell congress, close the online tax loophole before it closes main street."

The ad also claims (in typical dramatic political ad fashion): "Now, they're coming to America." That may be true for Alibaba — someday — but not exactly today. While the ad also mentions "other online giants," Alibaba is the face of the ad, despite not having a major U.S. presence yet. Outside of the wholesale import marketplace, Alibaba remains focused on its efforts at home. Joining the global marketplace is in Alibaba's long-term vision, though that's not unlike what Amazon has envisioned for expanding abroad.

"Its major consumer marketplaces, Taobao and Tmall, do not operate on American soil, and the company hasn’t announced any plans to do so in the near future. Alibaba has stated its home market will be its primary driver of growth in the coming years," A Tech In Asia article by Paul Bischoff reported. "In reality, the AMSF’s beef with Alibaba is no different than its beef with all online retailers."

In 2011, the group aired an attack ad with the same overhyped tone against Amazon's Jeff Bezos for finding the same sales tax loophole. Both the Alibaba and Amazon attack ads point out that the loophole only benefits the companies and consumers outside of the U.S. Particularly because of Alibaba's Chinese roots,

The retail group makes an easy attack against Alibaba's Chinese roots and turns it into a political scapegoat instead of focusing its attention on the real issue: Congress. It also uses Alibaba as a basis for supporting American-run companies.

"Unlike Seattle-based Amazon, Alibaba is cast in the negative light of a foreign adversary threatening the homeland," Bischoff wrote.

Here's the basis for AMSF's argument:

"The sales tax loophole, argues the AMSF, is unfair because online retailers who sell goods outside their state of residency don’t have to pay sales taxes in those states, unlike the physical stores that do. It was a major controversy as Amazon rose to the top. Eventually, eCommerce companies won out, and the debate died over a year ago," Bischoff reported.

But perhaps the claim that "this Chinese company will decimate out local retailers," goes too far. Clearly, Alibaba's success with its massive $25 billion IPO has the AMSF worried. Worried enough to place an attack ad, but they may be airing their grievances in the wrong direction. According to the article, what they want is in the hands of the congress and the president.

"The Marketplace Fairness Act of 2013, the successor to the original failed bill calling for online retailers to pay the same sales tax as their brick-and-mortar counterparts, was passed by the US Senate in May last year, but has not yet made it through the House of Representatives to arrive on President Obama’s desk for final approval."

Amazon initially publicly opposed that act, but later supported a version of the bill that helped Amazon, Bischoff  reported. This may be a path Alibaba can follow if and when it enters the U.S. market on a larger scale.

"Because sales tax rules vary between each US state, it’s difficult for smaller eCommerce companies to keep up with regulations. That’s no problem for a huge company like Amazon, though, and shouldn’t be a problem for the even bigger Alibaba," Bischoff said. "Secondly, Amazon agreed to start paying sales taxes in more states, where it could then build warehouses and improve its logistics and delivery speeds – another major advantage on its competitors that Alibaba could replicate."



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