New study about online sales tax asks the wrong questions

According to a recent article in The Atlantic, a new study by “Stanford researchers” tries to take a look at the effects that sales tax would have on online shopping.

The problem is, they they don’t take into account that sales tax is already due on online purchases—a point derided in the study as “tax surprises.”

The study, “out this week on the National Bureau of Economic Research, looks at how sensitive online retail is to tax changes by tracking the behavior of eBay users.” It doesn’t include real estate and auto transactions.

The study concludes that “a one percentage point increase in a state’’s sales tax increases online purchases by state residents by just under two percent, but decreases their online purchases from home-state retailers by 3-4 percent.”

But the same sales tax you pay locally is already due online. Nobody is suggesting raising sales taxes, online or otherwise—certainly not differentially. So what does this study really tell us about online sales tax collection?

Not much. It doesn’t take a team of economists to tell us that an increase in sales tax rates causes a decrease in sales, at least temporarily. Thank goodness raising sales tax rates isn’t on the table.

What we still don’t know is how online sales tax collection—having retailers collect the sales tax that is already due on online purchases, so individuals don’t have to calculate and remit it themselves—would affect online shopping. It’s too bad the researchers didn’t look at that question. But the Atlantic article ventures a guess:

Many shoppers aren’t just moving to the web because of price, but for convenience. All other things equal, it’s their default choice. And as that attitude becomes more prevalent, the impact of a sales tax could diminish.So would a sales tax put a crimp in online retail? Quite possibly. But it’s hard to believe it would be anything but temporary. (emphasis ours)

eBay is on record as opposing online sales tax collection—is it possible that they sponsored or otherwise supported the study in the hopes that it would add fuel to their argument?

After several days of consideration, this important question burned brighter and brighter, so we gave in and bought our own copy of the 42-page study (for $5.00, and no, they didn’t charge sales tax—see picture—and yes, e-books are subject to sales tax in the State of Washington. Mental note: Don’t forget to report and remit $0.48 to the Washington Department of Revenue because the online seller refuses to do this for me like every local store must.)

The paper is very upfront about pointing out potential conflicts of interest. One of the four authors, Neel Sundaresan, is Senior Director for eBay Research Labs and is employed by eBay. Another of the authors is Professor Jonathan D. Levin, Chair of the Department of Economics at Stanford University, who was a paid consultant to eBay Research Labs in 2010 and 2011.

Don’t misunderstand the point of our post—we would love to see a study that truly looks at the actual effects of online sales tax collection on online shopping. Unfortunately, this isn’t it.

We also wish the team had taken a moment to report on two very basic questions:

1. Out of all the transactions data they had access to (all transactions from 2008 to 2010), how many transactions included sales tax?
2. Out of all the sellers represented in the transaction data, how many sellers conducted more than 200 transactions or had over $20,000 in sales in each of the three years? Similarly, how many sellers exceeded $50,000 in sales in each of the three years? Finally, how many sellers exceeded $150,000 or $500,000 in sales in each of the three years?

Given the intensity of debate around this issue at the local, state, and federal level—particularly around these two points—it is unfortunate that the researchers missed (or avoided) the opportunity to provide such insight.

FedTax makes it easy for businesses to calculate, collect, and remit sales tax with its free TaxCloud sales tax management service. It was founded by e-commerce veterans who have extensive experience in large-scale internet services and have been directly involved in building some of the most recognizable brands on the internet, including Google, American Express, Microsoft, and Expedia.

How government is killing retailers and retail jobs

This piece originally appeared on The Daily Caller.  It is repurposed here with their permission.  Click here to read the original piece.

When government implements job-creation policies, sometimes it ignores the obvious. Take retail employment. Retailers with actual storefronts employ 1.9 million Americans, more than any other category, according to the Bureau of Labor Statistics.

Yet, retail jobs are in jeopardy. We see vacant stores throughout America. In the fourth quarter of 2011, our national retail vacancy rate was 11 percent, up from 7.7 percent in the first quarter of 2008, according to Reis Reports. It’s a retail vacancy rate we have not seen since 1991. Meanwhile, the unemployment rate for the retail trade is 9.3 percent, one point higher than the national unemployment rate of 8.3 percent.

Why has the retail industry suffered more than other sectors of the economy? Because brick-and-mortar retailers face a plethora of bad government policies.

1.) Retailers pay the highest corporate tax rate. The Obama administration’s recently announced plan to lower corporate tax rates reveals that retailers pay the highest effective tax rate of any industry listed — 31 percent. Retailers have almost no tax loopholes that can lower their effective rates. And unlike other industries, retailers do not have the option of moving overseas.

2.) Brick-and-mortar retailers operate in an unfair market. In 45 states, brick-and-mortar retailers must charge a state sales tax while their Internet competition does not. While consumers in these states are required to report and pay sales tax for out-of-state Internet purchases, few do. Even Amazon — which benefits significantly from the status quo — agrees that the current system must be changed.

In 2010, Virginia’s 8 million citizens reported and paid a grand total of $82,000 of sales tax for out-of-state sales purchases. Given Virginia’s four percent sales tax, that means citizens reported buying only $2 million — or 25 cents per citizen — of online goods from out-of-state providers. Amazon alone had well more than $2 million of Virginia sales. Although Amazon does not publicly break down U.S. sales, in 2010 the online retailer had more than $18.7 billion in North American sales. If you took Virginia’s share of the 463 million combined population of Canada, Mexico and the United States, this would translate to $323 million in Virginia sales — certainly a lowball estimate because it is improbable that Mexicans or even Canadians buy from Amazon at the same rate as Americans.

So Amazon purchases alone are underreported at least a hundred-fold, if not a thousand-fold, in Virginia and likely others states. This means Virginia retailers are losing significant revenue to out-of-state sellers. More, the Virginia government is being deprived of at least $10 million in revenue from Amazon purchases. This money not only represents an unfair burden on brick-and-mortar retailers but also reflects lost revenue that could be used to provide services to Virginia citizens. A simple congressional fix, the Main Street Fairness Act, would put online and brick-and-mortar retailers on the same footing.

The Virginia situation has in part been resolved for Amazon because Gov. Bob McDonnell announced on February 22 that Amazon would begin collecting sales tax from Virginia residents by September 1, 2013, or earlier if Congress acts to resolve the situation. But Amazon is just one Internet seller among many.

3.) Brick-and-mortar retailers face a complicated and anti-competitive regulatory environment. The Obama administration has been especially harsh on retailers. The National Labor Relations Board has imposed all sorts of new rules allowing for quick and easy unionization and requiring new workplace notices. Meanwhile, Obamacare places new burdens on all employers, but retailers are especially hard hit because many of their employees are seasonal or part time. The Dodd-Frank financial reform law, with its 800 pages of new rules, is yet another regulatory nightmare for retailers. This has left the market only to big players who can afford to comply with the new law.

Retailers are the heart of every town in America. But they are increasingly burdened by government policies that are putting them out of business.

Until and unless we change our direction and start confronting a ridiculous situation where job-creating employers pay higher taxes and face costlier regulations than their online brethren, we will see even more empty storefronts, higher unemployment and more services cut by state and local governments starving for sales tax revenue.

Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA)®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times bestselling book, The Comeback: How Innovation Will Restore the American Dream.”

Brick-and-mortar retail: The backbone of our communities

Aerial view (circa 1956) of the land where the Westgate Village Shopping Center is located today.

My company, Abbell Associates, is proud of the involvement it has had in communities across the country for more than 70 years.  A good example of this dedicated involvement is Westgate Village Shopping Center, in Toledo, Ohio.  My Grandfather first developed a shopping center on the site more than 50 years ago and it has been an integral part of the Toledo community ever since.

When we first acquired the land for Westgate Village, we knew we had an opportunity to provide the residents of Toledo with a state of the art (for 1956) shopping center. As the retail landscape and community needs changed over the decades, the original Westgate slowly became obsolete.  Again, we worked to provide the residents of Toledo with a state of the art (for 2006) shopping center by bringing in a 155,000 square foot Costco and 90,000 square feet of adjacent retail space that is now 100% leased. As a result, Westgate Villageis able to continue to play a key role in Toledo’s economy and local flavor, drawing customers from over 80 miles away.

The truth is Westgate Village isn’t just a place where people shop—it is part of the social and economic fabric of the surrounding community.  This center, like other shopping centers located around the country, provides a place for friends to grab a bite to eat or a mother and daughter to get their hair styled together.  Shopping centers also provide jobs in the community and generate sales, property and income taxes that fund essential services on which we all rely.

Americans may not be fully aware of the many important contributions brick-and-mortar retailers make toward the success of local economies—contributions online retailers cannot match. Estimates show that traditional retailers hire four employees for every $1 million in incremental sales, while online retailers only add one employee for the same amount.  Furthermore, when you spend $1 at an independent retailer, an average of 68 cents stays in the community.  Compare that to a dollar spent with an online retailer where nothing stays in the community.

From these numbers, it is clear to see that brick-and-mortar stores are a necessary part of any city’s economy. However, community-based retailers are being threatened by our current sales tax structure.  As the system stands now, online retailers do not have to charge sales tax at the point of sale, while brick-and-mortar stores do.  This means customers take their business online instead of to their local store because prices appear cheaper online.  The government should not favor one group of retailers over another.  We should all have the opportunity to compete fairly in the retail marketplace, and that cannot happen until Congress fixes this sales tax problem.

When local businesses disappear, communities are stripped of their energy and livelihood.  Healthy retail spaces, however, support all aspects of what people consider when they talk about quality of life: vibrant and dynamic places to live and do business.  I encourage Congress to take action that will provide a level playing field for our local retailers and allow our communities to thrive.

Liz Holland is CEO of Abbell Credit Corporation and Abbell Associates, a 70-year old family real estate acquisition, development and management company with an approximately 2 million square foot portfolio comprised of shopping center, office and enclosed mall properties.  Liz is responsible for overseeing all business and legal matters, including development, financing, leasing, capital improvements, and investor and tenant relations. 

Liz is the third generation of her family to run Abbell Credit Corporation and Abbell Associates.

Main Street Stores Should Not Become Online Retailers’ Showrooms

In the flooring industry, we understand that customers are eager to find the best deal because purchases are large commitments. Our sales representatives are happy to guide customers through the process of selecting an appropriate flooring product, developing a budget, and coordinating professional installation.  But there’s a growing phenomenon: customers using our stores as “showrooms” to touch, feel and preview items—only to buy online to avoid paying sales tax.  It’s devastating brick-and-mortar businesses and clearly demonstrates the inherent flaws in the current sales tax system.

Our highly-trained associates take pride in providing the best customer service possible.  Whether it’s in sharing the latest hardwood flooring trends, bringing your vision for the family breakfast nook to life, or building your “green”, eco-friendly home—we’re here to help.  It’s a rewarding experience that relies both on the expertise of our floor specialists and expectations that they’ll share in customer excitement over the finished product.  But unfair online competition deprives local retailers of the final purchase and weighs heavily on their ability to stay in business.

As a 3,000-strong membership of community-based stores, our view is that the problem lies not with the customer, but rather the sales tax system. The existing framework gives online retailers a price advantage of as much as 10 percent because they are not required to collect sales tax at the time of purchase.  We are not asking for a handout.  We simply want all retailers to have the opportunity to compete on a level playing field.bounce houses

Some states have taken steps to try to close the sales tax loophole and level the playing field, but changes at the state level are not enough. Federal action is necessary to make sales fair no matter where they occur. We want Internet retailers to collect sales tax at the point of sale just like community-based stores are obligated to do.  That’s why the World Floor Covering Association has joined with other organizations and companies in supporting the Marketplace Fairness Act and the Marketplace Equity Act.  The bills are in no-way “anti-Internet”, but instead seek to address fundamental unfairness in the marketplace.  As e-commerce continues its rapid growth, so too will the problem.

I encourage everyone to write their representatives in Congress to support sales tax fairness legislation.   Without federal action to close the online sales tax loophole, remote retailers will continue to benefit while brick-and-mortar stores are driven out of business.  And how would consumers benefit from that?Mickey Park Combo C4

Chris Davis is currently President and Chief Executive Officer of the World Floor Covering Association (WFCA), responsible for the entire scope of operations for the organization including overseeing legislative, educational and membership programs and developing strategic initiatives to represent the industry.  The WFCA is the floor covering industry’s largest advocacy organization representing flooring retailers, contractors and allied service providers throughout North America. 

Congress Must Act NOW

David SimonCompetition is a necessary part of a thriving retail marketplace. But in order for there to be real and fair competition, there has to be a level playing field. We need a business environment in which all retailers can grow, create jobs, and continue to drive the American economy. Brick-and-mortar retailers have for too long been put at a tremendous disadvantage by an antiquated sales tax framework that clearly benefits online retailers. Therefore, we are calling on Congress to support S. 1832, the Marketplace Fairness Act and H.R. 3179 , the Marketplace Equity Act, legislation that would fix this current competitive imbalance and ensure a viable marketplace for all retailers.

Online-only retailers are currently, in many circumstances, effectively exempt from collecting sales tax and, as a result, enjoy a price advantage – as much as 10% in some states. This is not a level playing field. This situation presents a severe challenge for the retailers that we rely upon to stay in business and create jobs. Every day that goes by without an equitable solution for online sales tax is another nail in the coffin for our local bricks-and-mortar retailers. Make no mistake – these retailers are profoundly linked to the economic vitality of our communities. It’s time for our leaders in Washington, DC to take action on policies that support 21st century retail, and it is critical that Congress quickly move forward with the Marketplace legislation (S. 1832 / H.R. 3179).

This website is designed to give you the tools you need to push your elected official to fix this problem. There is valuable information about the negative impact of the current sales tax system, resources to help you understand why this issue is so important to a healthy retail marketplace and useful economic data about how states are affected by this uncollected revenue.

The retail marketplace is changing, and the only way for local business to evolve and thrive is to fix our outdated sales tax system. We cannot afford—our communities cannot afford—to stand by as more and more brick-and-mortar businesses fall victim to the online sales tax loophole. Now is the time for Congress to address this problem and level the playing field for all retailers.

David Simon, Chairman and CEO, Simon Property Group

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