About

About

The shape of commerce is changing. There is an ongoing debate about the future of retail and how to reach a sustainable sales tax system for brick-and-mortar and online retailers. As a result of the 1992 Supreme Court case Quill Corp. v. North Dakota, Internet retailers are exempt from collecting the tax in locations where they do not have a physical presence. However, under current state tax statutes the tax on the purchase is still owed by the consumer, under what is known as a use tax. Many consumers are unaware of this obligation and enforcement by the states is difficult, which has fueled the misperception that online purchases are tax-free. Unfortunately, if a state were to audit the consumer and find that the tax on these purchases was not made, the consumer would be subject to fines and penalties by the state.

Not only is our current sales tax structure leaving consumers exposed to a tax liability, but it is also denying states critical funding. According to a University of Tennessee study, states were estimated to lose approximately $23 billion in uncollected revenue in 2012 from purchases made through out-of-state sellers. In turn, local businesses are asked to pay more in local and state taxes (sales, income, property, etc.) to make up the shortfall.

As Internet sellers exploit the tax loophole created by a Supreme Court decision, they are also putting community-based stores at a distinct pricing disadvantage and threatening the ability for these local retailers to stay in business. Increasingly, local stores find themselves serving as "showrooms" for unrelated Internet and catalog sellers, as prospective customers check out merchandise in person but ultimately buy online, erroneously thinking that they can avoid the sales tax. At the end of the day, retailers should be able to compete on attributes such as price and customer service, not government-imposed sales taxes.

The current system is outdated, complicated and flawed. It is operating under a decades old premise that figuring out multiple sales taxes is far too complicated for a seller of goods. Today, technology allows consumers to shop through mobile devices and retailers to easily calculate shipping charges and tax rates, while making product recommendations based on shopping behavior. With a marketplace that now exists online and across the street, we need tax policies that reflect this modern retail environment, as well as protect consumers who use and benefit from the multiple retail channels. It is time for a sales tax system that supports our 21st Century marketplace.