Walk into most retailers in the country and your receipt will show how much you paid in sales tax on your purchase. Order the same product online, and in many cases, it’s gone.
Supporters of the Marketplace Fairness Act, including co-sponsor U.S. Sen. Ben Cardin, D-Md., say that this disappearing act is only taking money out the pockets of retailers with a physical presence.
Improved Internet tax law, said Cardin, would’ve helped Maryland capture $375 million in revenue, enough to solve the doomsday budget crisis in Annapolis and eliminate the need for the special session of the legislature.
(A University of Tennessee study estimates that Maryland will lose approximately $184 million in uncollected sales and use tax revenues from remote sales in 2012, according to a Department of Legislative Services presentation last year, page 20.)
Survey shows public support
According to a study conducted by the National Retail Federation, an umbrella group of more than 100 national and international retailers, 60% of Americans believe state sales tax should always apply to online sales.
Although the NRF represents stores with a storefront as well as catalog and Internet sales, the trade association has launched an intensive 60-day media campaign to “level the playing field” for brick-and-mortar “Main Street” businesses.
A series of U.S. Supreme Court rulings have found that states cannot tax sales of merchants that do not have a physical presence in the state, and Congress extended that in a 1998 law. Previous attempts to change the law at the federal level have failed.
Despite support of the e-fairness bill though, an increasing number of shoppers are going online to avoid the tax.
“It really hurts to spend time with a consumer in our store and watch them walk out the door with their phone in their hand saying ‘I think I’ll buy it from this place on the Internet,’” said Jim Adams, owner of Baltimore’s Falls Road Running Store. Adams appears in this video by the trade group.
Ultimately, says Cardin, this only hurts the state’s retailers. “Maryland retailers aren’t looking for special treatment but simply a fair way to compete against large Internet sellers who charge similar prices but get away without collecting sales tax.”
Retail supports one-fifth of jobs in every state, about 742,000 jobs in Maryland. Directly and indirectly this accounts for about 16% of the state’s Gross Domestic Product.
“The $24 billion in lost sales tax is revenue badly needed by cash-strapped state and local governments to pay the salaries of essential workers such as police officers, firefighters, ambulance crews, and schoolteachers,” the National Retail Federation reported. “All of those public workers are among retailers’ customers, and when customers lose their jobs retailers lose sales.”
Losses may only get worse
According to an online retail forecast report produced by Forrester Research, Inc., online retail shopping will increase 10% each year until 2016 accounting for 9% of total retail sales. This is up from 7% in both 2010 and 2011, the report said.
Aggressive merchandising and the increasing ubiquity of smartphones and tablet communications encourages more impulse online purchases, said Sucharita Mulpuru, a Forrester analyst.
Adams said that without an Internet tax the the gradual shift from in-person to e-commerce will result in a loss of customer-centric relationships.
“I think as the online business becomes a bigger and bigger part of the American shopping experience, the next generation’s going to lose that ability to go in and have a hands-on experience in a small specialty store because they’re not able to compete at at that broad national level,” Adams said.
By Dana Amihere