Main Street retailers in the 45 states with a sales tax are required by law to collect tax on virtually all of their sales. The same applies to online merchants selling to customers in their own states. But with the rapid growth of the Internet, local stores are facing increased competition from large out-of-state online sellers who easily undercut them on pricing because of low overhead and high volume. And, under a 1992 Supreme Court ruling handed down before the expansion of the internet, those out-of-state competitors hold a further price advantage because they are not required to collect sales tax from customers in states where they don’t have a physical presence — such as a store or warehouse. With an estimated $25 billion going uncollected each year, this disparity is threatening jobs provided by local retailers and is getting worse as more shopping moves online.
Why It Matters to Retailers
America’s sales tax system unfairly favors online retailers — who are not required to collect sales tax on most sales — at the disadvantage of brick-and-mortar merchants. With sales tax amounting to 10 percent in some areas, Main Street retailers are seeing increased evidence that their customers are buying online in order to avoid the tax. Many local retailers report the phenomenon of “showrooming,” where consumers come into their stores to look at merchandise, then order it online. Smartphone apps that let shoppers scan product bar codes to see where an item can be purchased cheaper make matters even worse.
This discriminatory practice undermines not only Main Street retailers but also the communities they support. The billions of dollars 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. All of those public workers are among retailers’ customers, and when customers lose their jobs retailers lose sales.
NRF Advocates for Sales Tax Fairness
NRF believes it’s time to level the playing field so all retailers — no matter which channel they sell in — can remain competitive. While a number of states have passed their own legislation attempting to address the issue, NRF believes the solution to sales tax collection must be mandated by federal law, be fair and apply to all sellers, and be flexible enough for states to adopt and sellers to comply.
NRF has spent more than 10 years lobbying on Capitol Hill, testifying before Congress, working with governors, state treasurers, and state legislatures, and explaining the issue to the media. While a number of bills have been introduced over the years, the one that is finally gaining traction is the Marketplace Fairness Act — a bi-partisan bill measure that would allow states to require online sellers to collect sales tax the same as local stores regardless of whether they have a physical presence. Both brick-and-mortar stores and major online retailers support the legislation. The legislation passed the Senate 69-27 in May. In September, House Judiciary Committee Chairman Robert Goodlatte, R-Va., released principals he says should be incorporated into sales tax fairness legislation. In the meantime, a study released this summer by prominent economist Arthur Laffer estimated that passage of the Marketplace Fairness Act could lead to a $563 billion increase in gross domestic product and 1.5 million new jobs by 2022.
Time for Retailers to Get Involved
Retailers who support sales tax fairness legislation should contact Congress and tell lawmakers about the impact untaxed Internet sales have on local stores, jobs, and economy. NRF believes it’s time to pass legislation that would level the playing field between online and brick-and-mortar retailers.
Renowned conservative economist Dr. Arthur Laffer issued a new report on the importance of pro-growth tax reform and sales tax fairness to spurring economic growth and job creation (PDF). The Laffer report concludes that pro-growth tax reform, including leveling the sales tax playing field between online and local retailers, could help create 1.5. million additional jobs and jumpstart economic activity.