Closing Online Tax Loophole Will Level the Playing Field
Tax loophole gives online retailers unfair advantage over their brick and mortar competitors
August 8, 2012
Most Americans have spent the past 10 days or so glued to the television, watching America's greatest athletes compete against the world's best. Hearing their stories of sacrifice and hard work gives all of us an added sense of pride when one of our own finishes first.
Imagine the outcry if after swimming a race in world record time, Michael Phelps or Missy Franklin was awarded the silver—because the government gave another competitor a head start. That wouldn't make much sense to any of us watching from home, and it would certainly undermine the basic tenants and spirit of free and fair competition.
Shockingly, that unjust scenario is one that confounds brick and mortar retailers across the country today, putting them at a competitive disadvantage to their online-only competitors. Because of a loophole that predates the Internet itself, online giants like Amazon.com are not required to collect state sales tax at the point of purchase the way their Main Street competitors do. Their customers still owe tax on the purchase—something most consumers are surprised to learn—but Amazon in most cases is not required to collect it for them. This perception of "tax free" shopping gives online retailers an instant and unfair advantage over brick and mortar retailers that are required by law to collect sales tax on every purchase.
By giving online sellers and automatic 5 to 10 percent head start, it's virtually impossible for a Main Street retailer to compete on price. Even if they have the lower price, the sales tax loophole often makes the online retailer the winner. In a free market economy, that sort of special treatment is just wrong.
Retailers that populate our neighborhoods, hire local workers, and contribute to our communities aren't getting a fair shake. Rep. Mike Pence, a Republican of Indiana, summed it up best earlier this year when he said, "Inaction by Congress today results in a system that does pick winners and losers." We agree, and urge Congress to close this loophole by the end of the year.
All America's retailers are asking for is the opportunity to compete in a free market on a level playing field. Some companies will succeed and others will fail—that is the nature of capitalism. But government shouldn't be picking favorites, and needs to take its thumb off the scale and give every business a fair shot.