The Marketplace Fairness Act would close an outdated federal sales tax loophole that allows many online retailers to undercut traditional stores by not collecting existing sales taxes. In combination with free shipping many online retailers offer, their competitive price advantages — upward of 10 percent — will remain insurmountable without sales tax reform to close the loophole.
Unfortunately, a minority of uninformed small online businesses fear this reform. In a recent Seattle Times opinion piece, a Tacoma small business owner complained that national sales tax reform would result in a complicated and expensive mess for his business.
The truth is quite the opposite.
Under the federal bill, the software to instantaneously compute sales taxes for every U.S. taxing district would be free. And the companies that would provide that computer software would be responsible for filing sales tax returns for online merchants. The cost in dollars would be zero for any retailer required to comply with the law and file sales taxes from online sales.
It’s important to remember a couple of points in this national debate. The federal bill seeks to recover existing taxes, not impose new ones. The current loophole resulted from a U.S. Supreme Court ruling in 1992, when online sales and software technology were in their infancy. People were inexperienced and wary of shopping online and businesses would have found it hard to collect sales tax.
The competitive realities of the last generation are hardly true today. These days, consumers window shop at traditional retailers, then run to their computers to buy from online competitors who waive the sales tax. Other consumers are getting familiar with smartphone technology that scans bar codes in traditional stores to find out where the same items can be bought free of sales taxes online.
The economic ripples from these shopping trends will only add to the pain of lost jobs and retail closures unless everyone uses the same sales tax code and all retailers earn a chance to compete fairly.
Without sales tax reform, Washington state and local governments will be short $1.1 billion in overdue, existing sales taxes in the next two years resulting from online sales, according to a Department of Revenue estimate.
If collected, those revenues would be available to support schools and pay for police and fire protection. The current sales tax avoidance shifts more burdens to consumers whose income or property taxes must rise to compensate for uncollected sales taxes. That $1.1 billion should be used to meet taxpayers’ expectations for government services.
The debate about sales tax reform has been waged in Washington, D.C. for more than a decade. In that time, the competitive retail landscape has change dramatically. Traditional retailers and consumers are paying a heavy and mounting price for misunderstanding, misinformation and putting off national sales tax reform.
I ask all retailers and consumers who care about fairness and the health of our state and national economy to urge their Congressional representatives to pass this sales tax reform as soon as possible.
Jan Teague is the president/CEO of the Olympia-based Washington Retail Association, representing national and statewide members with some 2,800 storefronts throughout the state.
[Featured image used under license, depositphotos.com; credit: flytosky11]