Case for Fairness

A Level Playing Field

Congress needs to bring the sales tax system into the 21st Century.

The Truth About Sales Tax—Common Misconceptions

MYTH: Federal legislation to close the online sales tax loophole would create a new tax on consumers.

FACT: This is not a new tax. In states with a sales tax, purchases made online are already subject to the sales tax through what is known as a use tax. However, when an online retailer fails to collect that tax, 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 21^st Century economy.

MYTH: Legislation that requires every retailer—whether brick-and-mortar or online—to collect sales tax at the point of purchase is nothing more than a tax increase.

FACT: That is not the case. Online-only retailers are exploiting a massive loophole by not collecting the sales tax at the point of purchase despite the fact that the tax is still due. That loophole puts small local retailers at a significant competitive disadvantage as they are required by law to collect the tax. This is an issue of fundamental fairness and fixing an antiquated system that needs to be modernized for 21^st Century commerce. A sale is a sale whether it takes place through the click of a mouse or at a cash register, and the same rules that apply to brick-and-mortar stores should apply online.

MYTH: Requiring online retailers to collect the sales tax online will result in less Internet commerce and hurt both the economy of these states and the nation as a whole.

FACT: According to a 2011 study from the University of Tennessee, each $1 million of new retail sales in traditional brick-and-mortar establishments adds 3.61 jobs. The same $1 million in new sales at Amazon's average is expected to create 0.88 jobs. One out of every 11 U.S. jobs is shopping center-related; for every 100 individuals directly employed at regional shopping centers, an additional 20-30 are supported in the community due to multiplier effects. Local retailers hire our family members and contribute to our communities. But these businesses can't compete under current conditions with online giants that don't collect sales taxes and don't have a local presence in our neighborhoods. Unless the system is corrected, local retailers will become endangered species, as will the jobs that they bring to their communities.

MYTH: Collecting the sales tax would be extremely burdensome for online retailers as it would require them to develop, test, and install new software, which would be costly and time consuming.

FACT: The reality is that the software and Web applications necessary to collect the sales tax have already been developed and put into 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. It is a burdensome responsibility that most consumers are not even aware is theirs. The correct solution is for online-only retailers to harness Web applications that already exist for collecting the sales tax and to do so when the purchase is made, just like local retailers.

MYTH: No one is negatively affected and consumers benefit by being able to purchase goods on the Internet without paying the sales tax.

FACT: Across the board, everyone - including the purchaser - is put at risk when online-only retailers do not collect the sales tax at the time of purchase. The buyer has an unmet tax liability that could result in an audit and penalty. Small retailers that are forced to collect the tax are losing business as a result of the price disadvantage. And states, with massive budget deficits are going without revenue that could help ensure they pay down their debt and finance critical services like law enforcement and emergency personnel, or worse yet they are raising taxes on residents and businesses to make up the difference.

MYTH: Collecting the sales tax will hurt small businesses that operate online.

FACT: Solutions being discussed provide an exemption for those small sellers.

MYTH: This effort is a tax on online retailers.

FACT: This is not a tax on online retailers. Sales taxes on goods are paid by the consumers, not by the retailers that sell them. In order to have a fair competitive marketplace, online retailers should COLLECT sales taxes from consumers, just like their brick-and-mortar counterparts.

MYTH: If a state was able to force an out-of-state retailer to collect its sales tax, it would be a violation of interstate commerce.

FACT: Under Article 1, Section 8, Clause 3 of the U.S. Constitution, commonly known as the Commerce Clause, Congress has the power to regulate commerce among the states. While currently a state cannot compel on out-of-state retailer to collect its sales tax, Congress may pass a law that would grant such authority to the states. In fact, in the Supreme Court case Quill Corp. v. North Dakota, the Court stated 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."

MYTH: This effort is a tax on the Internet.

FACT: This is not a tax on the Internet. The Internet Tax Freedom Act created a moratorium on taxes relating to Internet access and on any new, multiple, or discriminatory taxes on the Internet. The Act did not exempt sales tax on Internet purchases.