Internet sales tax about fairness

May 13, 2013

Somewhere around 2000, the horizon appeared just about unlimited for Borders Books and Music.

The book and media retailer was expanding rapidly, its stores offering the kind of selection that moth-eaten mall stores like Waldenbooks or B. Dalton Bookseller could never hope to match. At times, Borders outlets seemed to be more than mere book stores – they were comfy, refined community centers with a literary bent.

Then a funny thing happened on the way to happily-ever-after. The online merchant, Amazon, started to gather strength. Amazon offered a selection that was even better than Borders – it was virtually bottomless. The prices were better than what Borders had to offer on most new books, compact discs or DVDs. You could also purchase high-quality used copies of books and other media through a countrywide bazaar of merchants via Amazon.

Soon enough, Amazon swallowed up Borders. In the handful of years before Borders finally folded in 2011, visits to the chain’s dwindling number of sickly stores were less about making purchases than they were reconnaissance missions to look over goods that could be purchased later at home with a couple of clicks.

That practice, dubbed “showrooming,” has come to infect other high-profile retailers, most notably big-box sellers of electronics like Best Buy and, yes, even Walmart. Not only do online retailers not have to pay for a building, utility bills and salespeople, but, in most instances, they also don’t have to pay state sales taxes. That’s one of the reasons the big-box giants say they are at a disadvantage against online competitors and why they are supporting a measure approved by the U.S. Senate last week that would empower states to collect sales taxes from online purchases.

It’s fate in the House of Representatives is highly uncertain, as many Republicans fear crossing their crossing their more vehemently tax-phobic patrons and constituents. But they should overcome their fears and give this their stamp of approval.

And not necessarily to fortify the balance sheets of heavy-hitting, brick-and-mortar retailers. The Best Buys and Walmarts of the world have stomped on their share of independent, mom-and-pop stores over the years, and they should be subject to the same laws of the marketplace jungle. Rather, an Internet sales tax would deliver fairness to all traditional retailers, both humongous and humble, and, perhaps most importantly, would give cash-starved states a needed source of revenue they have been deprived of as more transactions have occurred online. Internet sales in 2012 hit $226 billion in the United States, and some estimates have it that, in the same period, states lost $23 billion from online, mail-order, catalog and telephone purchases. That’s $23 billion that was leeched away from schools, roads and other necessary components of daily life that receive infusions of dollars from close to home.

As the rules are now formulated, consumers are supposed to send in the sales tax money they owe to their home state when they make a purchase online. Do you know anyone who has actually done this? No, we don’t, either. Under the proposal that’s on Capitol Hill, states would give software to merchants that would allow them to manage the infinite variety of state and local tax rates. A one-stop office would also be established in each state to collect taxes from out of state, thus simplifying and streamlining the process. Businesses that ring up less than $1 million a year in online sales from a certain state would not be obligated to collect taxes for it.

The legislation will probably raise the price of some items purchased online, but not by much. The lure of buying a hardcover bestseller for $12 rather than $27 will be as potent as ever.

The Internet has often been compared to the Wild West, both for the opportunities and the chaos it creates. An Internet sales tax would help bring a little bit of order to Dodge.



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