Online Sales Tax a Needed Boost for States, Cities, Local Retailers and Nation’s Economy
By Matthew Shay
WASHINGTON (McClatchy-Tribune News Service/MCT) – With Congress back for its lame-duck session, there’s an issue that has been lingering for more than 20 years that needs to finally be resolved: requiring online merchants to collect sales tax just like local stores.
It was 1992 when the U.S. Supreme Court ruled that online sellers could only be required to collect sales tax in states where they had a physical presence such as their headquarters, a store, a warehouse or an office.
The court said sales-tax laws and regulations across the country were too complex for a seller to know what tax to collect otherwise.
At the time, the ruling hardly mattered. Giants like Amazon and eBay had yet to be founded, and the multibillion-dollar world of e-commerce we know today was barely a dream.
Today, the world has changed. E-commerce has exploded, fueled in part by a price advantage of as much as 10 percent by virtue of not having to collect sales taxes. Main Street stores that provide good local jobs and support local communities are struggling to survive against online, out-of-state competitors who do neither.
And it’s not just retail that has been affected: State and local governments are laying off police officers, firefighters and schoolteachers as close to $25 billion a year in sales tax goes uncollected.
As a result, brick-and-mortar retailers have been asking Congress for more than a dozen years to pass legislation that would level the playing field by allowing states to require all online sellers — both brick-and-mortar and online — to collect regardless of physical presence.
After various incarnations, the legislation finally won Senate passage in 2013, but has stalled in the House over minor differences most observers outside the Beltway would never recognize.
If something isn’t signed into law by the time the current session of Congress ends, the Senate bill will die and the difficult, lengthy process will start all over again. We can’t let that happen.
Opponents claim they are protecting consumers against new taxes and small online sellers against huge compliance burdens. But the truth is that failure to act would do far more to harm both consumers and small businesses.
Let’s take taxes first: Critics have long claimed that requiring online sellers to collect sales taxes would constitute a new tax. But the truth is that consumers are already required by law to report untaxed sales on their state income-tax returns and pay the tax then. Few are aware of the requirement, and fewer comply. But if sales-tax-fairness legislation isn’t passed, states could decide to start enforcing the requirement — creating a nightmare for consumers across the country.
Even if that doesn’t happen, the loss of revenue places increasing pressure on states to raise other taxes — such as income or property taxes — to make up the difference. And states without such taxes could even be pressured to create them. Most voters would probably agree that it’s better to collect a tax that’s already owed than to raise other taxes or create new ones.
Critics also have claimed that being required to collect would create an undue burden on small businesses. In fact, the pending legislation requires states to provide sellers with free software making sales-tax collection as easy as calculating postage.
By contrast, failure to adopt a national standard would lead states to continue experimenting with new laws and approaches to capture the revenue, resulting in a far more complex system of requirements that vary from state to state.
Retailers aren’t asking for a new tax. They’re just asking for a level playing field where everyone plays by the same rules and one branch of the same industry isn’t given an unfair advantage over the other. It’s time to pass sales-tax fairness.
Matthew Shay is President and CEO of the National Retail Federation, the world’s largest retail trade federation, representing businesses that employ more than 42 million Americans.
Harry Reid’s Tax-Raising Ploy Is a Political Bamboozle
By William F. Shughart II
OAKLAND, Calif. (McClatchy-Tribune News Service/MCT) — U.S. internet commerce has grown dramatically over the past decade, from about $93 billion in 2003 to some $322 billion in 2013.
Several factors have driven this growth: convenience, access to products that aren’t always available locally and, frankly, the desire to save money, since online purchases from sellers in other states generally are sales-tax free.
This last item rankles many state officials, who see a potential bonanza — perhaps as much as $23 billion per year — if internet purchases could be added to the sales-tax base. That means a lot more money for state governments to spend.
The inability of one state to collect sales taxes on purchases from retailers located in another state dates to a 1992 U.S. Supreme Court decision involving Quill Corp., a mail-order seller of office supplies.
The Court ruled that Quill and other retailers are not required to collect sales taxes on orders delivered to out-of-state customers unless the distant seller has a “physical presence” — a distribution terminal, warehouse, or brick-and-mortar store — in the customer’s home state.
“Clicks” such as Quill have enjoyed favorable tax treatment not granted to “bricks” ever since.
Six years later, in 1998, Congress enacted a three-year moratorium on internet taxes, which it has renewed four times since.
That moratorium will expire on December 11 unless it is extended again, or made perpetual, as the Permanent Internet Tax Freedom Act, passed by the House of Representatives in July, would do.
Democratic Senate Majority Leader Harry Reid of Nevada wants to move in the opposite direction, and has promised to push for Senate approval of the so-called Marketplace Fairness Act (MFA) during Congress’s upcoming lame-duck session.
The “fairness” in the MFA’s Orwellian title refers to internet-sales-tax proponents’ belief that “e-tailers” have a competitive advantage over traditional retailers, who are required to collect sales taxes from all of their customers, including out-of-staters who patronize their stores.
Forty-five states now impose sales taxes. Their rates vary widely, ranging from a high of 7.5 percent in California to a low of 2.9 percent in Colorado.
Moreover, some states exempt certain products from sales taxes — typically food and clothing — or tax these items at lower rates. These differences would require online sellers to compute the rate applicable to nearly every shipment.
While supporters of internet sales taxes make good rhetorical arguments, their arguments are full of holes.
Firstly, the retail playing field is not as out of whack as they would have us believe.
Brick-and-mortar stores, for example, do not add shipping-and-handling charges to their prices, as many online retailers do.
Amazon cannot deliver a cappuccino with your book order. And online sellers of shoes and clothing cannot offer customers opportunities to feel and touch their products, try them on for size or see their colors in the light of day.
Instead of bemoaning unfairness and lobbying for protection, local retailers can offset their sales-tax disadvantages in many ways.
Secondly, state lawmakers do not need another $23 billion in sales-tax revenue to fatten government coffers. Indeed, if internet commerce continues to grow as expected, this $23 billion is just a down payment.
More importantly, like cross-border shopping in the physical world, the existing tax exclusion for internet sales applies a brake on sales-tax rates.
Eliminate the exclusion and you give state lawmakers a green light to increase these rates, making everyone poorer and transferring more money from the private sector to the already bloated and inefficient public sector.
Lifting the internet-sales-tax moratorium is a recipe for bigger, more intrusive state governments. Senator Reid should junk this bad idea and reconsider his lame-duck agenda.
William F. Shughart II, research director and senior fellow of the Independent Institute, Oakland, CA, is J. Fish Smith Professor in Public Choice at Utah State University’s Huntsman School of Business.