Case for Fairness

How Sales Tax Impacts Us All

Impact on the Consumer
Impact on Small Business
Impact on Local Economies

Impact on the Consumer

Simply put, there is no legal way to avoid paying sales tax if you live in a state with a sales tax. According to current state tax codes, the consumer is responsible for paying taxes on all purchases whether the retailer collects it or not. For purchases made online where sales tax is not collected, the consumer is left with the burden of tracking the purchases where the tax was not collected, calculating the appropriate amount of tax due and remitting it directly to the state department of revenue. This is an unreasonable and unnecessary burden for individuals. Not only is the current practice confusing, but it is also difficult for the state to enforce. Many consumers are unaware of this obligation, so the tax is often not reported. However, individuals can be audited and penalized for not meeting these tax obligations.

Other potential impacts include:

  • Reduced choice and convenience for consumers as community-based businesses are forced to close because they can no longer compete in a tax environment that overwhelmingly favors online-online retailers.
  • The inability to purchase goods that are needed immediately from local retailers, like pharmacies or hardware stores, that are pushed out because of the unfair tax collection burden.
  • Cuts to critical services, such as education and emergency response, as a result of lost revenue to the state
  • Increases in other taxes and fees on residents, such as property taxes and income taxes, to make up the lost revenue

Impact on Small Business

Part of doing business as a brick-and-mortar retailer is collecting sales tax—as much as 10% in some states. Online retailers continue to hide behind an outdated system and do not collect the tax, providing a competitive price advantage over their brick-and-mortar counterparts. Increasingly, community-based 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. Clearly, the existing tax framework is providing an unfair and unnecessary preference to certain Internet retailers.

This tax loophole for online-only retailers has created an artificial disruption in the marketplace that is threatening the ability for neighborhood stores to keep their doors open. Retail is a highly competitive environment. A 10% price advantage is a sizeable one in any competitive scenario, but, particularly in the thin-margined retail industry, any automatic price advantage will have a significant impact.

This is an issue about fundamental fairness and fixing an antiquated system that needs to be modernized for 21st Century commerce. It is not government's place to pick winners and losers from among retailers. At the end of the day, retailers should be able to compete on trade attributes such as price and customer service, not government-imposed sales taxes. A sale is a sale whether it takes place on the Internet or at a small business, and the same rules that apply on Main Street should apply online.

Impact on Local Economies

Faceless remote sellers, without a physical presence in local communities or the desire to reinvest in them, are crippling traditional downtown retailers and threatening local jobs by taking advantage of this tax loophole. Community-based stores invest in their neighborhoods and play a major role in the overall quality of life in the places we call home. They keep our workers employed and are an integral part of many civic and charitable organizations. Without a competitive retail environment in our communities and efficient delivery of goods and services, the economic health and local flavor of our communities will be jeopardized.

Local brick-and-mortar retail is the backbone of this country, revitalizing communities, helping to keep them vibrant and drawing people to live, work and shop. People and businesses tend to migrate to communities with a strong retail presence; they also tend to leave when retail is no longer easily accessible. Local retail is also directly related to a community's economic stability by virtue of the property and sales taxes it contributes.

Our current sales tax system deprives local communities of significant revenue that is needed to pay for many critical public services, such as emergency responders, law enforcement, educators, infrastructure improvements and other government programs. A 2009 University of Tennessee study estimated that in 2012 alone, the lost revenue could reach as high $23 billion nationwide. Especially as states grapple with budget gaps, this revenue will be critical in helping local communities provide necessary services to our residents.