As online sales growth outpaces results from traditional stores, a sales tax reform bill now in Congress keeps getting more important to pass.
The Marketplace Fairness Act would close an outdated federal sales tax loophole that allows many online retailers to undercut traditional stores by not collecting existing sales taxes.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]
Susan and Rick are absolutely correct and have addressed most of the main flaws of this editorial. And it would have a lot more credibility if it weren’t written by a paid advocate of the B&M retail industry.
I work for a midsize online retail company, and the MFA would be major headache. It won’t put us out of business, but we will have to employ 3 people to make sure that we are complying. Those are 3 people who could be working to create value to the company rather than simply comply with government regulations. Furthermore, the idea that the government is “losing” money by not taxing citizens comes from a perspective that I would not expect to see at the NW Daily Marker.
Plus the idea that “the software to instantaneously compute sales taxes for every U.S. taxing district would be free” is laughable. That’s what we were told about Obamacare, among other things. This whole piece of legislation is a bunch of nonsense and should be rejected by anyone who claims to be a conservative and support free enterprise.
The state taxpayer (not to be confused with the buyer that pays taxes on Internet merchandise) gets hurt too because the AAA-CPA has determined that the costs incurred by smaller businesses (which would be paid by the tax payer) voids out any use tax that would be collected and that would go to the states. That means that the taxpayer would once again end up subsidizing big business growth! It’s a non-happening, politically motivated tax that only ensures the continued growth of big box business and would shut off future entrepreneurial efforts on the Internet.
And another wasted tax on the American people who are being duped by both big government and big business. And the small local retail shop would continue to lose out because unless they expand their selling on the Internet, they will continue to fall behind. The MFA would discourage them from doing so.
The MFA presents a MYTH that sales tax is not collected on the Internet – over 90% of the sales dominated by big box companies are ALREADY being paid. That figure will be over 90% next year. Even Amazon is now pro MFA because it’s figured out a way for the sales tax to help its retail expansion as it cuts one favorable deal after another in states!
Read this article (But there is a figure correction – it’s not $23 billion tax that needs to be collected, but a percentage of $4 billion, again, when divided by 46 states, 600 Native American sales tax districts, the territories, amounts to little if anything – that means the act would also dupe the states!:
May 15, 2013, Washington D.C. Is Chasing After Ghost http://www.rollcall.com/news/washington_is_chasing_a_ghost_on_internet_tax_revenue_commentary-224833-1.html?pg=1
Also, while astroturf such as Stand with Main Street (#efairness), hope that small local businesses support the act, its one of a number of sites operated by big, very expensive promotion companies out of Washington, D.C., with paid for participation. They hope to lure small local business into supporting the act when in fact the act would dramatically thwart or kill smaller local, online, or brick n click. The MFA would allow money hungry states to cross across state borders and file one audit after another against smaller business and also set new regulations for the invaded state. It violates state sovereignty and would essentially destroy state autonomy which our fore fathers worked so hard to ensure.
With big box retailers having spent over $50 million to get the act through the Senate, big bucks are flowing into the House that is supposed to represented the average American citizen. It could be over $100 millions lobbying funds when all is said and done?
Why is so much money being spent on an act that most Americans don’t even know about? Because it would change the landscape of how America would be taxed, giving big govern the ability to control how state taxes are collected, and it would destroy the small business competition on the Internet, with the collection and remittance of use tax creating such burdens for smaller businesses if they grow beyond a certain point, that it would ensure the retail supremacy and profit of the big box retailers that could continue paying the more business friendly sales tax because they have ubiquitous physical presence throughout the US.
The MFA is a bad tax that needs to be defeated and consumers should speak with their wallets imo and say “no more taxes” and manipulation that weakens the middle class and creates greater economic disparity!
This article contains many errors. First off, WA is missing out on only about $205M (see http://www.xcergy.com/2009-tax-data.htm) because 83% of online sales are already taxed. Secondly, Price Waterhouse Coopers did a study and found that for small businesses the direct cost of compliance with MFA is 13% of every sale. Finally, the AAA-CPA (group of CPAs that would *benefit* from the MFAs passage) said that the entire amount of sales tax collected would be eaten up by business tax compliance costs (http://emainstreet.org/wp-content/uploads/2013/07/AAA-CPA-Position-Letter-Against-Marketplace-Fairness-Act.pdf). Finally, Teague is a lobbyist, so why even listen to her? What do you expect from a mercenary doing Amazon and Walmart’s bidding?
Look at the facts, not the data-free propaganda-heavy platitudes of a paid lobbyist.
By the way, the US House of Representatives disagrees with Teague, which is why the legislation is stalled there.
The Marketplace Fairness Act is a tax increase and America hates it.
Sorry, but it’s completely offensive to me as someone who is an online retailer and VERY aware of every aspect of the MFA and sales tax collection implementation details to have her dish out platitudes and outright falsehoods regarding the myth of “free software”.
“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.”
Sorry, his piece is dead-on. He’s a smart guy who actually understands the implementation details. With all due respect, you don’t. At all. WE are not the uninformed here.
“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.”
No, that’s not what the MFA says at all. Or the reality. Read the bill sometime.
“software free of charge for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect rate changes as described in sub-paragraph 11”
States must supply free software to report their taxes. But any state can choose any solution independently they wish, or create their own software. We have no way of integrating multiple states’ solutions into our infrastructure.
Our only solution is a paid solution. Those have initial costs and ongoing costs every year. And they don’t support even our fairly simple setup. Sales tax is WAY more than figuring out a sales tax amount in a cart, that’s the tip of the iceberg. Our order processing software charges the cards, handles returns, partial returns, all the things where sales tax comes into play. And our Amazon order aren’t supported either.
“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.” And if MFA passes, that situation will still remain. Stores under $1million in sales will not be affected by MFA and neither will foreign sellers which have been increasing lately.
For info on the real issues: