Wednesday, November 28, 2012

The days of tax-free online shopping may be coming to an end.

Vermont Rep. Peter Welch and other congressmen are lobbying for passage of the Main Street Fairness Act -- legislation that would require online retailers to collect sales taxes -- in an effort to “level the playing field between Main Street retailers.”

Welch said the bill would help simplify the collection of sales taxes on online purchases so brick-and-mortar and online retailers would all collect the same taxes. Currently, Internet retailers are only required to collect sales taxes in states where they also have a physical location. Welch said that puts local retailers at a competitive disadvantage because they are required to collect sales taxes at the point of sale. Out-of-state retailers, however, including many large online and catalog retailers, can provide customers with a “discount” by collecting no state or local sales taxes.

“If there is a sales tax on the product and you require the brick-and-mortar store to collect but not the online retailer, that's obviously not fair,” Welch said in an interview with the Bennington Banner.

No doubt there will be some who balk at the idea of instituting a sales tax for online retailers, including Republicans in Congress.

“The opposition was that many of my Republican colleagues treated this as though it was a new tax. And the doctrine, of course, was to oppose any new tax,” Welch said.

However, we don't see this as a new tax. It's simply requiring online retailers to pay the same tax as local retailers. That's only fair.

Since 1999 there has been a moratorium on the imposition of Internet access taxes. The conventional wisdom at the time was that this emerging industry needed time, and an economic boost, to get off its feet. Taken together with the prohibition on taxation of inter-state sales, absent “nexus” in the taxing state on the part of the seller, the result has been a rapidly increasing loss of revenue for the states as Internet sales have begun to grow.

Congress, for its part, has refused to lift the inter-state taxation ban until the states got their act together in terms of simplification of sales taxes. Welch said lawmakers are looking to make it simple for large retailers, and protect small businesses that sell few goods online. He said there could be uniform software for everyone, or exemptions for small businesses.

Not only would this level the playing field for all retailers, both online and off, it also would help cash-strapped states replenished their depleted coffers.

Some states, like California, already enacted their own sales tax for online purchases earlier this year. Analysts say consumers have become so accustomed to the convenience of online shopping that the tax has had no effect on sales.

“It doesn't look like they're having a lot of negative impact,” professor Dale Achabal, executive director of Santa Clara University's Retail Management Institute, told the Contra Costa Times. “What we're seeing is a shift in the way consumers are shopping, with a greater use of online for a significant percentage of their holiday purchases.”

Cyber Monday sales continued to grow around the country this year because of heavy marketing and deals by online merchants, consumer confidence in the economy and the explosion of iPads, smartphones and apps. While national results from Cyber Monday are still being tallied, Americans were expected to spend about $2 billion on what has become the biggest online sales day of the year.

Dot.coms are no longer the fledging industry sector they once were. The time has come to stop shielding them from the sales taxes that other retailers have been paying all along. Fortunately, Welch said he's encouraged by a shift in attitude among some Republicans regarding a sales tax for online retailers.

“They've got merchants as constituents, too. I'm impressed with the growing support I'm getting from my Republican colleagues,” Welch said.