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Mayors' Group: Internet Sales Tax Is Good for All

Mayors' Group: Internet Sales Tax Is Good for All

By Tom Cochran - April 28, 2013

In a significant victory for state and local governments, the Marketplace Fairness Act cleared a major procedural hurdle last week in the Senate. The bill, which has garnered wide bipartisan support and is queued up for a final vote, would require online retailers with sales over $1 million annually to collect state and local sales taxes. As states and local municipalities continue to navigate the aftermath of the Great Recession, this bill would allow them to finally collect the revenue they are owed and better serve the needs of their constituents.

The legislation aims to close a loophole that has existed for more than 20 years, leaving states unable to enforce their own sales tax laws. According to the Supreme Court’s 1992 decision in Quill Corp. v North Dakota, Internet and mail-order retailers are not required to collect state and local sales taxes as long as they do not have a physical presence, such as a store or office, in the customer’s state. Although consumers are suppose to pay these taxes on their own, most are unaware of the requirement and states have no pragmatic way of imposing it.

The net result has been a serious loss in revenue, which only continues to widen as Internet-based commerce grows. Take for instance, Los Angeles, where the projected e-commerce tax revenue loss for 2013 is over $95 million. In Chicago it tops out at more than $55 million. Think of how many projects currently sitting in the pipeline -- from fixing bridges and roads to funding schools and law enforcement -- could finally get the green light with that kind of money.

Under the proposed bill, it is estimated that state and local governments would be able to collect $23 billion each year from remote sales. With few resources at hand and budgets buckling under increased pressure, this much-needed infusion of revenue could shore up local coffers and provide the funds for critical investment in local infrastructure and basic services. And with federal funds dwindling, this shift could broaden the tax base considerably and help states and localities thrive.

But make no mistake: This is not a tax increase. The bill simply gives state and local governments a way to collect money that is already owed. And, in the process, it levels the playing field between merchants on Main Street and those who sell over the Internet, allowing them to finally compete on equal ground.

For years, online retailers have enjoyed for all intents and purposes a subsidy that has given them a significant advantage over their local counterparts. By not paying sales tax, Internet sellers have been able to undercut, by 5 to 10 percent, brick and mortar shops that, at this point, have been reduced in many instances to mere showrooms. The issue has only intensified as more and more people make purchases online. In 2012, e-commerce sales in the United States added up to $226 billion, a 16 percent increase from 2011.

At the end of the day, this boils down to a basic question about fairness. We need to ask ourselves why online retailers should be given a leg up over local businesses that are doing their part every day to support their communities by paying taxes. Everyone should carry their own weight and pay their fair share. Not only is it what is right, but it is also the foundation for healthy competition in the marketplace.

The Internet has unmistakably reshaped the world of retail. Today, nearly one in 10 sales occurs online. Once enacted, the Marketplace Fairness Act will not only help state and local governments collect sales taxes, but will help make competition between all merchants fair and equitable, regardless of how the merchandise is sold. And, during these tough economic times, it will give a fundamental boost to the economy by helping to stimulate growth and create more jobs. It’s basic common sense and Congress should pass the bill immediately. 

Tom Cochran is CEO & executive director of the U.S. Conference of Mayors

Tom Cochran

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