Case for Fairness
|A Level Playing Field|
|Congress needs to bring the sales tax|
system into the 21st Century.
Questions and Answers
What is wrong with the current sales tax system?
A: A massive loophole is being exploited whereby online-only retailers are not collecting sales tax during a purchase despite the fact that the tax is still due. Meanwhile, brick-and-mortar retailers are required by law to collect the tax on behalf of the state, putting them at a significant disadvantage to their online counterparts. This antiquated tax system needs to be modernized for the 21st Century marketplace where purchases now happen at a cash register or through the click of a mouse. A sale is a sale no matter where it happens, and the rules that apply on Main Street should apply online.
Isn’t a tax on purchases made over the Internet a new tax?
A: No, it is not a new tax. In states with a sales tax, purchases made online are already subject to sales tax through what is known as a use tax. When an online retailer fails to collect the tax, the responsibility falls to consumers to report that tax to their state department of revenue. This is a confusing and unnecessary burden for consumers that needs to be addressed in a 21st Century economy.
Why must there be a federal solution?
A: In the 1992 Supreme Court case Quill Corp. vs. North Dakota, the Court determined that states could not compel out-of-state sellers to collect their sales taxes because the burden would be a violation of interstate commerce. Since Congress has the power under the Commerce Clause to regulate interstate commerce, it, and not the states, is in a position to create a level playing field for local merchants. In fact, the Supreme Court stated in the Quill decision that the problem "is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve."
Don't consumers already pay a tax on online purchases?
A: Only those retailers with a physical presence in the state are required to collect sales tax from the consumer. Many consumers who live in states with a sales tax are unaware that they are legally obligated to report and pay sales taxes on ALL purchases made online. Online-only retailers fail to inform consumers about the fact that it is their responsibility to report the amount of sales tax due and pay it directly to the state. At the end of the day, consumers should not have to bear the burden to calculate and report sales taxes for online purchases.
How does the current sales tax system hurt small businesses?
A: Local brick-and-mortar stores operate at a competitive price disadvantage with remote sellers who do not collect sales taxes. Local stores find themselves serving as showrooms for Internet sellers, as prospective customers check out the merchandise locally but buy the product online, erroneously thinking that they can avoid paying the sales tax. Especially in the retail industry, which operates on razor-thin margins, every last dollar counts. Unless the problem is corrected, local retailers will gradually be pushed out of business by a tax system that is favoring their online counterparts.
What actions might states take if the current system isn't fixed?
A: States that are currently experiencing massive budget deficits may increase other taxes and fees, like property taxes and/or income taxes to make up the difference in lost sales tax revenue - in fact, it is already happening in some states. The reality is that states have massive deficits and unfunded mandates they cannot finance without finding additional revenue or cutting essential services. It only makes sense to collect a tax that is already due before instituting new taxes on everyone.
Won't collecting a sales tax on online purchases be extremely burdensome?
A: No. The reality is that the software and Web applications necessary to collect the sales tax have already been developed and put in place by numerous retailers that choose to adhere to the law. The alternative is the system that we have today, where individual taxpayers are required to record purchases they make online, calculate the appropriate tax due and file it directly with the state or carry an unmet tax obligation, exposing them to potential audit and penalty. The correct solution is for online-only retailers to harness Web applications that already exist for collecting the sales tax and to do when the purchase is made.
Won't requiring online retailers to collect sales tax (on top of shipping) put them at a disadvantage?
A: No. At the end of the day, retailers should compete on attributes such as price, convenience and customer service, not government-imposed sales taxes. Retailers offer different features to satisfy various consumer demands. However, when one retailer is forced to collect a tax that another does not have to collect, it disrupts the competitive field and violates the spirit of a free market. Requiring online retailers to collect sales tax will simply level the playing field for all retailers.
- $260 BILLION: That's how much revenue states will lose by 2025 if Congress doesn't act on' #EFairness'' @ICSC'' @NCSLorg…' https://t.co/umWi0Hoevb
3 hours ago @efairness
- Need for' #EFairness' "has never been greater with states losing an estimated $26 billion annually" via' @ICSC…' https://t.co/smkKuWlXaq
5 hours ago @efairness