The proposed legislation would reform sales tax laws that predate the Internet with uniform sales tax collection for both e-commerce and brick-and-mortar retailers.
E-commerce is becoming a larger and larger part of Americans' spending, with online purchases accounting for nearly 7% of all retail spending in the United States. One of the benefits of purchasing online, other than being able to avoid crowded malls, is that you often do not need to pay sales tax. Consumers who make purchases online are expected to claim those purchases on their annual tax returns and pay applicable state taxes, but very few people actually do. On March 10, 2015 the Marketplace Fairness Act of 2015 was reintroduced to the Senate to make it easier for states to collect sales tax on online purchases. The proposed legislation would reform sales tax laws that predate the Internet with uniform sales tax collection for both e-commerce and brick-and-mortar retailers.
The legislation was previously introduced in 2011 and 2013. In 2013 it was passed by the Senate but was never brought before the House because of concerns that it would be perceived by the public as raising taxes. The 2015 bill is being presented as a way to reduce the “government subsidy” that is given to online retailers who are not required to charge sales tax and therefore are able to offer lower prices. Lower online prices make it more difficult for bricks-and-mortar stores to compete as they have to account for property and sales taxes.
The following figures from the U.S. Census show the rising share of e-commerce relative to overall consumer retailing.
In terms of economic development, the Marketplace Fairness Act has both positives and negatives:
- Local stores have a hard time competing with the large online retailers who are able to offer discounted prices, in part due to not having to charge sales tax. The local retailers in our communities are struggling to remain viable in this climate and leveling the playing field with online retailers, even just a little, could help turn the tide.
- The increase in state revenue that could be generated through the sales tax collected could reduce the amount of tax necessary from other sources (income, property, etc.) and increase the amount of discretionary funds that consumers have to spend locally.
- The new sales tax revenue could be used to support economic development efforts including grants for local businesses, infrastructure improvements, and retention efforts.
- Opponents of the bill such as Dan Grippen, the National Governors Association executive director, point out that consumers purchasing goods from states where they don’t live will effectively force them into a situation of “taxation without representation.”
- Companies with a strong online presence would be induced to move to states with low sales tax rates creating a federally incentivized “race to the bottom” for sales tax rates across the United States.
- Many local businesses are supplementing their bricks-and-mortar sales with online sales and so they would also be forced to charge sales tax and could lose this business that is supporting their Main Street presence.
I’m sure this will be a heavily debated topic in the coming years as e-commerce continues to make up an ever larger percentage of overall consumer spending. Do you think this type of bill would help or hurt your downtown revitalization efforts? Let us know in the comments.