Tuesday, August 31, 2010
Political Editorial: Taxing Internet Sales
This Op-Ed piece was printed initially in the Omaha World Herald, 2009
I say it is time to collect internet sales taxes.
This call to arms may be anathema to a fiscal conservative but let’s inject some facts into the discussion.
State and local government budgets are, in some part, based upon the collection of sales tax revenues. Basic epistemology of fiscally conservative thought is that fewer taxes equate to smaller government and that is usually perceived as a good thing. However maintaining functional government budgets is inarguable.
As we look at the evolution of technology and its impact on the retail industry, we are seeing a growing shift to online sales of everyday goods. For the most part this shift towards online sales does not capture sales taxes – negatively impacting State and local government budgets. The shift is also creating an unlevel playing field that favors online retailers against local ‘brick’ retailers since a tax free purchase may equate to as much as a 12% discount in some markets [ 7% here in Omaha].
Put another way, the immediate effect of a discount on tax-free online purchases sends wealth out of the Omaha market and, as a community; we lose the benefit of the economic multiplier effect created by that money circulating throughout our state and community. In the long term we may also risk losing retail jobs and, as we all know, the retail industry is a significant employer.
It is a fact that small business is the engine that drives the American economy. The Maryland based Tischler & Associates, Inc. (now d/b/a Tischler Bise) reported that “Big Box retailers generate a net annual deficit of $468 per 1,000 square feet (to taxpayers)…Fast food restaurants have a net annual cost of $5,168 per 1,000 sq. ft…In contrast, specialty retail has a positive impact on public revenue of $326 per 1,000 sq. ft.” (Tischler & Associates) When you weigh in the actual employment impact as well as the economic multiplier effect, government should be strongly incentivized to support the local retail economy.
According to the Wall Street Journal, several states, including North Carolina, Hawaii, California, Connecticut, New York, Maryland, Minnesota and Tennessee, have decided to level the playing field through recent legislation. Online behemoth Amazon has threatened to “clip local affiliates” rather than pay their currently defined legal share of sales taxes. (Fowler, 2009). The University of Tennessee estimates that “uncollected Internet Sales taxes will cost state and local governments more than $11,000,000,000 a year by 2012.”
In its early guise, government nurtured the viability of online companies by allowing this issue to go unnoticed. According to the U.S. Census Bureau, in the First Quarter of 2009 online sales were $31,717,000,000. (Quarterly Retail E-Commerce Sales, 1st Quarter 2009, 2009) By any standards the online retail industry has been sufficiently incubated and it is time to level the playing field as well as increase State and local revenues through the appropriate application of existing and needed sales tax collection laws.
Studies indicate that 8% - 12% of retail sales have moved online; the impact on government budgets is apparent. Because of the disparity of various state and local taxation levels, the process of collecting and submitting levies of online sales would be a significant burden to retailers. A suggested method could be to have a uniform nationwide taxation level for online sales thus simplifying the collection and submission process for retailers. Another “level playing field” consideration could be to reduce in-store sales tax levels as a result of collecting sales taxes on all retail sales once again.
Finally, this is not an advocation for a new tax. Nor can a reasonable person misconstrue this to be a call to increase taxes. If we are going to tax retail sales, and history shows we are, isn’t it about time that Nebraska, and Omaha, join in the processes to balance the playing field? At the very least this is an existing loophole that needs to be debated.
Richard ‘Rick’ Galusha
Fowler, G. A. (2009, June 19). Amazon Threatens Cuts Over State Taxes. Wall Street Journal , p. B3.
Quarterly Retail E-Commerce Sales, 1st Quarter 2009. (2009, May 15). Retrieved June 24 , 2009, from U.S. Census Bureau News: http://www.census.gov/mrts/www/data/html/09Q1.html
Tischler & Associates. (n.d.). Retrieved September 18 , 2003, from http://www.smartgrowth.org/news/bystate.asp?state-ID