Airtight arguments for fairness on sales taxes

May 2, 2013 

The following editorial appeared in the New York Times:

Twenty-one years is a long time to wait. But that is how long local retailers have waited for Congress to undo a 1992 Supreme Court decision that exempted many online retailers, like Amazon.com, from collecting most state sales taxes. The exemption has given online sellers a 5 percent to 10 percent price advantage over Main Street stores.

The wait, however, might soon be over. Next week, the Senate is expected to pass the Marketplace Fairness Act of 2013, a bipartisan bill that would authorize states to require out-of-state sellers with more than $1 million in sales to collect sales taxes. The states, in turn, must simplify their sales-tax codes and give retailers free software to calculate the taxes – steps already taken by most states. An identical bill in the House also has bipartisan support.

Lawmakers have raised the issue for years, to no avail, and, in the meantime, many brick-and-mortar stores have gone out of business. The willingness to act now is driven in part by the fact that Amazon, which fought hard to preserve the exemption, recently gave up the fight. That’s not because the company suddenly developed a belief in sales taxes. Its business model – especially its emphasis on same-day delivery – is changing in ways that would soon cause it to lose the exemption anyway.

Main Street needs a level playing field to compete with the exploding online industry. So do large retailers, like Best Buy, that have cut jobs as shoppers have increasingly tested electronics at local stores and then gone home to buy them online without paying sales tax. Equally important, states need the revenue to help recover from the recession. Noncollection of sales tax on online purchases costs states an estimated $11 billion a year. Another $11 billion goes uncollected on mail-order catalog sales, which would also be covered under pending bills.

In the past, most bills that deal with revenue, no matter how justified, have fallen victim to the knee-jerk refusal among many Republicans to even talk about taxes, urged on by anti-tax groups like Grover Norquist’s Americans for Tax Reform. But, as reported in The Times on Monday, lawmakers from both parties have come to see that the argument for sales-tax collection is airtight.

Sales taxes for any state are already legally due on online purchases that would be taxable if the items were bought in a local store. If the retailer does not collect the taxes, the buyer is supposed to send them to the state voluntarily. They are virtually never paid.

The proposed law would close that loophole, not impose new taxes. It’s a matter of efficiency and fairness, of necessity and competitiveness. If those really are bipartisan values, the Senate will act without further delay to pass the Marketplace Fairness Act, and the House will follow suit.

The New York Times

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