I run an online business in Texas selling eco-friendly products like glass water bottles and cotton grocery bags. Over the past few years, the business’s costs have soared. But our shoppers are also dealing with inflation, so we’ve tried to hold our prices steady — leaving us with substantially thinner profit margins. At the same time, a double-taxation policy handed down by the previous comptroller has further eroded our profits and made it tough for small businesses like ours to compete online.
Fortunately, tax-relief may be on the way. On August 18, less than three weeks after being sworn in, Comptroller Don Huffines announced the Taxpayer First Project, saying Texas businesses had spent too long navigating unfair, retroactive policy changes and inconsistently applied rules — and on September 2, he invited me and four other small sellers to discuss the double-tax’s impact on our businesses.
I explained that, like thousands of other Texas businesses, we sell our products through online marketplaces like Amazon, Etsy, and eBay. When a customer buys one of our products, we pay the marketplace a fee for services like displaying our products on its website and processing the customer’s payment. It’s the digital version of the fees small businesses often have to pay retailers to place products on their shelves.
Two years ago, then-comptroller Hegar decided to reinterpret an outdated 1987 tax on “data-processing services,” forcing businesses like mine to pay additional taxes on the fees we pay e-commerce platforms. Notably, the change didn’t come from the legislature. Lawmakers never voted to tax marketplace fees. Instead, the tax came from a reinterpretation inside the comptroller’s office — precisely the kind of policy-by-directive that Mr. Huffines has committed to replacing with open, public rulemaking.
The 1987 law wasn’t intended to apply to e-commerce, because e-commerce didn’t exist back then. It wasn’t clear why Mr. Hegar suddenly decided to apply the new tax to e-commerce fees, given that e-commerce had been around for over 20 years — and his damaging interpretation of the law meant Texas online businesses were stuck paying double taxes with every sale on an online marketplace.
Comptroller Huffines and his team recognized the potential problems with his predecessor’s interpretation, and were open to the possibility of excluding marketplace fees from the 1987 data-processing statute — where the legislature left them. He also understood that the data-processing tax makes small Texas businesses less competitive with rivals in other states because it forces us to raise prices, which means we’ll lose sales to businesses in other states whose products cost less because they don’t have to pay the tax.
I deeply appreciate Comptroller Huffines’ willingness to listen to small-business owners like me, and to take a fresh look at the current interpretation of the 1987 data processing statute — and I hope his review leads to a sensible solution that distinguishes ordinary online-marketplace seller services from taxable data processing services.
State leaders should encourage — not tax — entrepreneurs who sell through online marketplaces, because online marketplaces offer access to millions of customers and huge opportunities to efficiently grow and succeed. Texas prides itself on fostering entrepreneurship, but taxing the fees sellers pay online marketplaces undermines that goal.
For years, Texas has attracted businesses from states that discourage entrepreneurs and small-business owners with onerous taxes. I look forward to working with Comptroller Huffines and his team as they review this policy and pursue a solution that helps keep Texas’s entrepreneurs competitive in today’s digital economy.
Mohamad Sam is co-founder of Texas-based company Purifyou.