Let Main Street Compete With Internet Giants
Exempting Internet purchases from sales tax never made sense
March 28, 2013
It's no secret that state governments need all the revenues they can get. Five years after the financial crisis, states are still struggling to close huge budget gaps, forcing harsh ongoing cuts to education, infrastructure, and social services. This is not a moment for states to be letting billions of dollars in revenue slip through their fingers every year by failing to tax online sales. In fact, exempting Internet purchases from sales taxes has never made sense.
So it is great news that the U.S. Senate recently voted by a sizeable majority to move toward closing this loophole by empowering states to collect taxes for online sales. If this legislation is enacted by Congress, it will mean higher revenues for states and, maybe just as important, reduce the unfair advantage that Internet retailers have over brick-and-mortar merchants.
How much revenue are we talking about? According to the National Retail Federation, a stunning $24 billion in potential tax revenues from online sales goes uncollected every year. That's a big number, and many cash-starved states are taking a major hit. For instance, Michigan lost over $400 million in potential revenue in 2010, the same year that it made a number of harsh budget cuts in the face of a $1.5 billion deficit.
Various states have already moved to collect Internet sales taxes, including Connecticut. Action by Congress would facilitate and speed along that trend. It's hard to say how much more revenue will ultimately end up in the coffers of state treasuries, but every dollar makes a difference.
Anyway, what we can say for sure is that online sales taxes are helpful to brick-and-mortar merchants, and that's a good thing for a bunch of reasons. Physical stores play an important role in communities by providing local jobs and opportunities for social interaction. When you shop on Main Street, as opposed to on Amazon, you're more likely to know your neighbors, or even see them behind the counter.
Internet retailing poses enough of a threat to Main Street without enjoying a tax advantage. So let's hope such breaks become a distant memory sooner rather than later.
One note of caution: Opponents of the legislation in Congress, including eBay—which represents myriad small online proprietors—have raised important red flags about the challenges of complying with online sales tax laws. These concerns need to be addressed. The last thing Congress wants to do is inadvertently empower Amazon vis-à-vis small online retailers even as it tries to rein in that Internet giant.