It is December and lo! ‘Tis the season for beloved traditions, including the joys of making a list, checking it twice, and then shopping like mad. But over the past few years, a new tradition seems to have sprung up – spurred by the growth of online shopping – and that is media reports regarding sales tax fairness. While just a few years ago these reports usually emphasized the uniqueness of online – and very often sales-tax-free – shopping, this year’s articles have a decidedly different tenor: A much greater percentage are pointing out the incongruities and inequities inherent in the failure to collect mandated sales tax.
“A great deal of our sales tax fairness campaign has included an educational component that stressed how the current sales tax inequity has deep and important ramifications. It doesn’t just negatively impact retailers – the loss of sales tax revenue impacts the entire state,” said ABA CEO Oren Teicher. “We, along with other retailers and trade associations, have pointed out how the failure to enforce existing law fairly is having deleterious effects on communities across the country. We have also stressed that this is in no way about a new tax – this is simply about what entity is responsible for collection and remittance to the state. As recently as two years ago, most op-eds, editorials, and articles on sales tax fairness overlooked these critical issues. That’s no longer the case. Without question, a greater percentage of people, including reporters and legislators, now fully comprehend what is really at stake.”
In mid-November, the Chicago Tribune published the article “Internet Sales-Tax Dodge,” which discussed how sales tax inequity affected not only retailers, but also the entire state economy:
“‘It’s trickle-down bad,’ says suburban lighting gallery owner Glen Kaplan, describing the 15 to 20 percent drop in his business that he attributes to the increasing numbers of consumers who avoid paying sales taxes by shopping online.
“‘The village loses revenue, the state loses revenue, our profit margin shrinks, so we have to end up cutting our employees’ hours,’ he said. And the economic ripples just go out from there….
“[O]n a $1,000 item … the tax … is enough to send customers to online retailers based in other states that offer free shipping and charge no tax.
“Technically, yes, the purchaser is supposed to fill out Illinois Department of Revenue form ST-44 and render unto the Ceasars of Springfield a 6.25 percent use tax that functions as a sales tax.”
At the end of November, on WBUR’s blog, Hub Bub, Andrew Phelps discussed how sales tax inequity is hurting Massachusetts retailers and the state due to lost use tax revenue:
“I suspect mail-order sales are no longer a big threat to Massachusetts retailers; the New Hampshire problem is an old one, but the fact that you have to put on pants and drive there is a deterrent to would-be tax evaders. An Internet retailer such as Amazon.com is hard to beat, though.
“I can go to my local Best Buy and purchase a 32″ Samsung LCD TV, on special, for $539.99 + $33.75 tax. Or I can buy the same television at Amazon.com for $537 + 0 tax (and free shipping)….
“Now, you’re supposed to report your Internet purchases every year on your tax returns – it’s called a use tax – but who does that?”
More recently, in an op-ed in the Birmingham (Alabama) News Commentary blog, Dianne Wammack, co-owner of Cameras Brookwood and vice chairman of the Alabama Retail Association, noted how customers come into her store to ascertain information. Then they will go and purchase the product online from a remote retailer:
“As online sales increase (last year, online sales grew at four times the rate of brick-and-mortar stores), more of our customers decide to shop where they aren’t charged the tax. What most of them don’t know is even though the tax doesn’t appear on their bill, it is still due to the state of Alabama, Jefferson County, and the city of Vestavia Hills. You are supposed to make a note of the portion due to the state on your income tax return at the end of the year, and local governments recommend you mail them a check for the owed taxes right away.
“The state of Alabama has even put in tax-tracking computer systems and suggested audits may be down the pike if consumers don’t start paying taxes due on online sales made by remote retailers. The state sent letters to hundreds of taxpayers in September in an effort to educate them on the taxes owed, and it plans to keep doing that periodically.”
Even articles that urge shoppers to take advantage of tax-free shopping at Amazon.com (while it lasts) also acknowledge that the current sales tax inequity provides Amazon.com an unfair competitive advantage over Main Street retailers – a disadvantage that is bad for the economic health of a state and a problem that should be rectified either at the federal or state level.
For example, the article “Get Ready for the e-Commerce Internet Tax” noted:
“Best Buy generated $50B last year. It employed 180,000 full time employees. Amazon, which had half of Best Buy’s revenue, employed a meager 25,000. For every dollar of revenue created by Amazon, it translated into 1/4 of the jobs than it did at Best Buy. Applying this ratio to Amazon’s sales, this means 65,000 less jobs created. 65,000 less people with disposable income, paying payroll taxes, and circulating money locally. I know this is a bit of a generalization, but you get the point.”
And in the Slate article “Every Day’s a Tax Holiday: How Amazon.com Undersells Best Buy, the Apple Store, and Almost Everybody Else” writer Farhad Manjoo noted:
“So, is Amazon’s tax-free status unfair? Of course it is. As [Michael] Mazerov [of the Center on Budget and Policy Priorities] points out, Amazon has physical operations in 17 states in which the company and its employees enjoy the fruits of local taxes – police and fire protection, roads, hospitals, and other infrastructure that make its operations possible. Yet Amazon skirts tax collection in most of these places through clever legal tricks. For instance, it has incorporated its warehouses and website as separate legal entities in order to argue that it doesn’t really have a presence in Nevada, Texas, and other states. The Kindle offers another example of that strategy – the e-book reader was developed at Lab126, an Amazon office based in Cupertino, Calif. But that office is actually a legal subsidiary, freeing Amazon of collecting any taxes in California.”
Here is a look at some other recent articles on sales tax equity:
- Slate Takes on Amazon’s Unfair Advantage, Columbia Journalism Review, December 8, 2010
- Cyber Sales Tax System Unfair to Local Merchants, Polk County Democrat, December 6, 2010
- Online Taxes Could Raise Revenues for State,The Daily Tar Heel, December 7, 2010
- Lack of Online Sales Tax Hurts Local Businesses, The Bradenton Herald, December 3, 2010
- Internet Sales Hit City, County Budgets, Rome News-Tribune, December 5, 2010
- The Taxman Will Come to the Web, Wall St 24/7, November 30, 2010