The start of the holiday shopping season has evolved from a single day, Black Friday, to a five-day stretch of promotions and discounts, and is now on the verge of consuming almost all of November. Technology that enables easy, at-home shopping has benefited both retailers and consumers, but it often exploits a major tax loophole that gives online retailers an unfair advantage and leaves consumers vulnerable to tax penalties. It’s time for Congress address the online sales tax disparity head on, in a way that takes the burden off consumers and makes the relationship between brick-and-mortar stores and their online counterparts more equitable.
Under current tax law, online retailers are not required to collect taxes on purchases made by people living outside the states where the businesses have a physical presence. Instead, in states that have sales taxes, customers are supposed to track all their online purchases and pay a “use tax” when they file their taxes at the end of the year. So, if you live in Utah for example and buy online from a company without a store or offices in the Beehive State, then you need to pay sales tax on your purchase.
The truth is, most people don’t even know about the use tax, so almost no one pays. A congressional report found that fewer than 2 percent of consumers report and pay use taxes on their purchases from out-of-state Internet retailers. The result is that billions of dollars in owed tax revenues go uncollected.
Under the cover of this archaic law, online retailers are able to offer better bottom-line prices than brick-and-mortar shops — affording them a distinct advantage when competing for bargain-hunting customers. Some brick-and-mortar stores faced with lackluster sales are even forced to close or lay off employees, hurting local economies and communities. As you can imagine, this is especially problematic for locally owned, mom-and-pop stores around the country — though workers at more and more major retailers such as Radio Shack, Sears and Target are facing layoffs caused in part by exploitation of the tax loophole.
It’s time to revise our laws, restore retail competition and allow local businesses to thrive. Congress must pass legislation to close the online sales tax loophole and give store-based retailers the opportunity to compete. Requiring all retailers to collect owed sales taxes not only protects small businesses — it also protects consumers against the potential threat of new taxes to fund essential state services. The Senate made progress on this issue in 2013 by passing the Marketplace Fairness Act, which enables states to simplify and enforce existing sales tax laws for all businesses, but the bill stalled in the House. With the 2014 elections behind us, it’s time for the House to act on this issue.
The success of the “Small Business Saturday” campaign has proven that consumers support their local retailers and small business owners, and will do their part to help them succeed. A recent survey by the International Council of Shopping Centers found that 7 in 10 Americans support federal legislation that would require online-only sellers to collect sales tax at the time of purchase, and more than nine in 10 believe local retailers are important to their community’s economic health. Most compelling: more than half — 56 percent — of Americans say collecting sales tax from online-only vendors at the time of purchase is fairer to local retailers.
Small businesses are the backbone of our communities and the American economy. Our policies should promote them and help them succeed, much less punish them by putting them at a competitive disadvantage based on an outdated set of taxation rules. Yet, that’s exactly what government is doing by giving an extra discount to the online-only retailers that put our neighborhood businesses at a disadvantage. If members of the House are indeed listening to their constituents’ opinions, these responses should provide the evidence needed for Congress to take action and right this wrong.
Gary Shapiro is president and CEO of the Consumer Electronics Association®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books, “Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses” and “The Comeback: How Innovation Will Restore the American Dream.”