A bill that would allow states to require online retailers to charge sales taxes on purchases made by the states’ residents might just be the law of the land before the year is out. It’s about time.
The bill, the Marketplace Fairness Act, hasn’t had much trouble in the U.S. Senate, which was expected to approve it today. It faces more difficulty in the House, where tea-partiers and other tax opponents hold considerable clout.
Their arguments shouldn’t be difficult to sweep aside. For starters this law doesn’t increase taxes, it merely requires enforcement of present law. Many consumers might not know it, and many of those who do ignore it, but they’re often required now to pay sales tax on online purchases if retailers don’t collect it.
The new law would make the competition between so-called brick-and-mortar retailers and online retailers fairer. Many local stores, for instance, can compete with online retailers in terms of price, but state and local taxes in Manhattan, for instance, add about 8.5 percent that is rarely paid in online transactions. It’s not uncommon for shoppers to patronize local merchants to determine what they want to buy and then purchase it online.
The lost sales taxes add up. Last year, for example, Americans shelled out $343 billion on e-commerce, the overwhelming majority of which was untaxed. One estimate puts the lost tax revenue at $11 billion; another puts it closer to $20 billion. Kansas loses tens of millions of dollars a year because residents’ purchases online are rarely taxed.
As for the complexity of sorting out the proper tax rates depending on purchasers’ residences, there’s no reason software wouldn’t be able to make those calculations. Also, states would be wise to adjust their tax systems to smooth the transition for retailers. What’s more, the legislation would exempt the smallest online retailers — those with less than $1 million in out-of-state sales. Other retailers ought to consider taxes one of the costs of doing business, as local retailers do.
To the argument that retailers shouldn’t have to pay sales taxes in states whose services they don’t use, it’s worth remembering that they’re not paying the sales tax, they’re collecting it and passing it along.
The notion of taxing online purchases was once considered a threat to the growth of e-commerce. That is no longer the case. In fact, the failure to tax online sales gives e-commerce an unfair advantage of brick-and-mortar stores. It’s time for that to change.