Pro: A level playing field could give states, counties and cities an annual boost of $23 billion
Twelve years after Falls Road Running Store opened, owner Jim Adams faces an uphill race against online competitors. A growing number of would-be customers try on shoes at his Baltimore store only to buy them later from websites that do not collect state sales taxes.
In states across the country, similar loopholes have tilted the competitive landscape against the brick-and-mortar stores that have been the foundation of America’s communities for generations. Leaders in Washington need to come together to ensure Main Street and online, remote retailers follow the same rules of the road.
Retailers compete with each other every day on price, service, convenience and selection. Good retailers try to match or exceed their competitors in every area. But, under the current system, the law gives remote sellers a singular advantage brick-and-mortar stores can’t match because they aren’t required to collect sales tax.
Why would anyone create such a backward policy? No one intended to do so. The loophole emerged as an unintended consequence of a Supreme Court ruling handed down in 1992—three years before Amazon.com sold its first book.
While the court ruled that states could not force “remote” retailers based in other parts of the country to collect sales taxes, the justices could not have known then how severely their decision would distort competition in an era of e-commerce. But in the 20 years since, retailers like Adams have learned the hard way. “It really hurts to spend time with a consumer in our store, watch them walk out the door with their phone in their hand saying, ‘Well, I think I will buy it from this place on the Internet,’” Adams said.
As stores have lost business, communities have lost much-needed jobs. In Ohio, for example, a recent study by the Economics Center at the University of Cincinnati found that leveling the playing field for local retailers could add 15,000 jobs to the state’s economy. Forcing online retailers to collect sales tax would also provide revenue for cash-strapped state and local governments. When online retailers avoid collecting these taxes, they deprive governments of the revenue needed to pay teachers, police officers and firefighters. According to the National Conference of State Legislatures, these losses could reach more than $23 billion this year nationally. That money could close the budget deficit in half the states.
During a time of tough financial choices for state and local governments, the decision before Congress should be an easy one. Two decades after the Supreme Court opened this tax loophole, the time has come to close it. While the justices once worried about how remote retailers could navigate the complexities of so many different state and local sales tax systems, advances in software have overcome this challenge. Retailers can now calculate sales taxes as quickly as shipping costs. No wonder many online retailers, including Amazon.com, have joined the large majority of Americans who support making sales tax fairness the law of the land.
As a matter of interstate commerce, Congress must take the lead. Fortunately lawmakers in both parties have gotten the message. In the Senate, Democrats and Republicans have sponsored a bill called the Marketplace Fairness Act that would require online retailers to comply with state sales tax laws. To avoid burdening smaller merchants with compliance costs, the bill exempts online retailers with less than $500,000 in annual sales. In other words, casual sellers just looking to make a few extra bucks on eBay would have nothing to fear.
During this time of economic challenge, Main Street businesses across America have already paid their fair share. Now online retailers should, too. By enacting sales tax fairness, Congress can give Falls Road Running Store and other brick-and-mortar retailers the level playing field they deserve.
Matthew Shay is president and CEO of the National Retail Federation, the world’s largest retail trade association. Readers may write to him at NRF, 325 7th St. NW, Suite 100, Washington, D.C. 20004.