Social Shopping Raises New Tax, License, Fee Issues

It often isn't easy being a market disruptor. Incumbents--both in the marketplace and in the government and regulatory apparatus-- often can raise any number of obstacles to new ways of doing things. One of the perennial problems is simply how to apply existing law, developed in one context, to different practices in a new context.

That sort of problem is common in telecommunications, where regulators have to figure out what a "telephone call" is when it can be completed in other ways, using Internet apps such as instant messaging or other clients, for example.

Competitors have obvious incentives to argue for a "level playing field." But regulators and taxation authorities also care. If cable TV revenues fall, so do the fees that cable operators pay municipalities, for example.

Amazon and other online retailers have been fighting state efforts to tax their operations, and it is no secret that large brick-and-mortar retailers find this in their own interest, even as taxation authorities try to maximize revenue under new circumstances that do not fit the old models well.

Groupon, for example, offers limited-time, limited-volume deals. A particular offer might offer $20 worth of merchandise for $10, for example.  Groupon keeps half the revenue, the retailer gets the other half, without having spent any money up front, and the consumer gets a deal.

But regulators in Massachusetts argue that Groupon discount vouchers for alcohol violate liquor laws, and it is possible as many as 25 states will follow suit.
The legal issue is that regulators may decide that Groupon, which takes a cut of sales, has been selling alcohol without a license, fine it and perhaps force the company to get its own liquor license.

More likely--and as unappetizing for Groupon--its local business customers could face hefty fines or loss of their licenses. Groupon doesn't appear to be greatly concerned, insisting the laws don't apply to its business.

Another problem: who pays the sales tax, and in what amount? Is tax owed on the $10 a consumer paid, or on the $20 value?

read more about Groupon issues here