It is a practice becoming all too common these days because, thanks to an unintended tax dodge dating back to the prehistoric Internet period of 1992, online retailers don’t have to collect sales tax.
That gives cyber stores nearly a 10 percent price advantage over local brick-and-mortar retailers and it is robbing Washington state of millions of dollars in tax revenue.
If Congress is serious about supporting small businesses and creating jobs on main street, they should run, not walk, back to work and pass the Marketplace Equity Act now waiting action in the U.S. House.
The House bill, and a companion one in the Senate, would allow states to tax online sales and require online retailers to collect the tax, if they sell more than $500,000 per year (the Senate bill raises the sales threshold to $1 million).
The bill is a fix for the 1992 Supreme Court ruling in Quill v. North Dakota that prohibited states from collecting sales tax if the business did not have a physical presence in that state. The case involved catalog sales and did not envision a world of burgeoning online retailers.
But today, e-commerce is growing rapidly – by more than 16 percent in the past two years and about to topple $200 billion in annual sales. Economists say another 25 million new online shoppers will purchase goods via computer or smartphone in the next four years.
The sales tax lost to online business is crippling state governments. Gov. Chris Gregoire said recently, “Without updates to these laws, Washington state alone stands to lose $446 million in state and local sales-tax revenue to untaxed Internet commerce in fiscal year 2013.”
About $300 million of that would go to the state, and the remainder to local government. States across the nation lost an estimated $23 billion in 2012 alone in uncollected sales taxes.
Gregoire also acknowledged the current law hurts small businesses like those all over Thurston County. “That places local retailers, often small businesses, at a competitive disadvantage. As is too often the case, buyers use these small retailers as the showroom to view and compare products, to only later buy the same product online.”
The bill has such bipartisan support, that Gregoire finds herself in unfamiliar territory with Republican governors such as Chris Christie of New Jersey and Bill Haslam of Tennessee, who might be expected to oppose online equity as a tax increase.
But Republicans have found an ideological end run around the tax issue. GOP Sen. Mike Enzi of Wyoming said, “Let’s clear up one thing: this is not a new tax. The Marketplace Fairness Act is not about new taxes. ... We are talking about an existing state tax that purchasers already owe. And it is a tax on all sales, not on the Internet itself.”
And not only does the bill have bipartisan support, but many large online retailers, such as Amazon.com, are supporting the measure.
With all of that agreement, the bill should have whisked through Congress with relative briskness. Alas, e-commerce might be propelling ahead at cyber speed, but Congress hasn’t even started the count down to liftoff.