How An Online Sales Tax Would Help Corporate Interests And Hurt Small Businesses

For many customers, one of the true benefits in online shopping is the lack of sales tax. Under a 1992 Supreme Court decision, retailers cannot collect sales tax from an out-of-state customer unless the retailer had a physical facility in the customer’s state. Most states, like New York, ask their residents to track online purchases and pay their sales tax as a “Use Tax” on their end-of-year income tax filing. Few taxpayers actually did this.

This sense of “unfair play” has rattled brick and mortar stores, who feel that the online stores’ growing share of the retail market is responsible for shrinking sales. From 2012 to 2013, online sales grew 13 percent, from $231 billion to $262 billion, while the retail market as a whole grew just under three percent. While online sales only constitute eight percent of all retail sales in the U.S., as of 2012, recent developments — such as Blockbuster Video being driven out of business by competition from Netflix and Borders’ Books shutting their doors after a losing market fight with Amazon.com, which is now endangering Barnes & Noble — have made physical retailers jumpy. The states are looking for a way to collect the sales tax they feel is due them in an attempt to help balance their budgets.

“This collection disparity has tilted the competitive landscape against local stores, creating a crisis for brick-and-mortar retailers around the country and in your state,” said David French, senior vice president of the National Retail Federation.

To remedy this, the House Judiciary Committee has issued “principles” for guiding conversations toward establishing new legislation. “Americans across the country are affected by the issue of Internet sales tax whether they are consumers or business owners,” wrote House Judiciary Committee Chair Bob Goodlatte (R-Va.)  “The aim of the principles is to provide a starting point for discussion in the House of Representatives. I greatly look forward to hearing fresh approaches to this issue and continuing the discussion.”

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