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 increasing 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 $24 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, or more, 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 $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. All of those public workers are among retailers’ customers, and when customers lose their jobs retailers lose sales.
NRF Advocates for Sales Tax Fairness
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. Those efforts have paid off with introduction of the Marketplace Fairness Act — a bi-partisan bill that creates a national, legal framework that empowers states to require online retailers to collect sales tax. Both brick-and-mortar stores and major online retailers support the legislation. NRF worked closely with the sponsors of the bill as it was drafted and is leading the retail industry’s efforts to see it passed by Congress and signed into law.
Time for Retailers to Get Involved
Contact Congress and tell lawmakers about the impact untaxed Internet sales have on local stores, jobs, and economy. It’s time to pass the Marketplace Fairness Act and level the playing field between online and brick-and-mortar retailers.