Should online retailers pay sales taxes?
The matter on levying sales tax on online retailers is not as easy as Main Street ‘brick and mortar’ stores want to presume. The US senate passed the Market Fairness Act in May 2013 as a means of leveling the playing field for the different businesses. On the one hand, brick and mortar stores laud the act as a step in the right direction since their stores have been used as mere showrooms where customers check in to sample their wares but leave without making any purchases, which they do later online. On the other hand, online retailers argue that the act is punitive to them as it will have many undesirable outcomes. This report supports the latter argument and seeks to lobby against Arizona repealing the Market Fairness Act.
There is a fundamental difference between how the act will affect the two sets of businesses. Brick and mortar stores’ sales tax is based on the seller whereas it is buyer-based for online retailers. This means that online businesses will be required to comply with an array of different taxes levied by different states. If an online business was to receive orders from Chicago, New York and San Diego, then, it would be subject to the sales tax laws in the three cities in addition to those of the three states. On the contrary, brick and mortar stores only pay one local and state sales tax on the customer that walks through their door without considering the origin of the customer. This we argue does not contribute towards market fairness.
Considering that there are over 9,600 tax jurisdictions in the US, compliance to each tax regime would be burdensome to online stores and would have many undesirable consequences (Jenney, pp 6). Proponents of the law argue that there will be development of computer programs that will assist in compliance to these tax jurisdictions. Such programs are not yet operational and even if they were to be successfully developed, they would require a lot of resources to be integrated into businesses. The costs associated with assimilation of such systems in businesses would lead to an estimated 220,000 job losses in the first year alone.
The bill has an exception for businesses that have annual sales less than $1 million. However, there is a major distinction between sales and profits. While businesses like eBay and Overstock.com have sales of more than $1 million, they had a profit margin of 1.7% in 2013. These two businesses would survive the tax regime due to their sheer size. However, small businesses with an annual profit of $17,000 would not be able to comply with the over 9,600 tax jurisdictions and would most likely go out of business.
The Supreme Court declined to rule on the impasse between online retailers and states over the online taxes. This gave the states free reign to tax remote sellers while piling pressure on congress to enact laws that would solve these disputes. Congress has been in a fix in trying to come up with appropriate laws for the past 20 years. However, the process has not been easy as there are complex matters to be considered. It is therefore premature for those states that have chosen to levy these taxes as there is no firm legal basis for them. The Supreme Court in declining to rule was acknowledging that such a decision was not as easy as it has been made to seem by brick and mortar stores. Large online retailers have taken their grievances to court as they seek to stop these punitive taxes and lobby for others that will be fair to businesses as a whole.
Works cited
Jenney T. Sales-tax bill unfair to online retailers. AZcentral.com, 2013. Accessed 27th Jan, 2014 <http://www.azcentral.com/opinions/articles/20130901sales-tax-bill-unfair-online-retailers.html>
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