Brick-and-mortar retailers won a well-deserved and long-overdue victory last week when the Senate passed a bill requiring their online counterparts to collect state sales taxes.
As consumers have turned increasingly to the Web to make purchases over the last decade, conventional retailers have been put at an unfair disadvantage. They have to collect state sales taxes, while most Internet retailers don't. That hands online retailers a virtual discount equivalent to the cost of the sales tax. In New Jersey, the tax is 7 percent; in Pennsylvania, it's 6 percent. And even though customers in the 45 states that have sales taxes are supposed to remit these unpaid taxes themselves, only about 1 percent do.
This inequity harms conventional retailers, which contribute directly to communities' economies and employ their residents.
Beyond harming local businesses, the practice costs states about $23 billion a year in lost sales tax revenue, according to the National Conference of State Legislatures. For New Jersey, it means about $300 million a year that must be made up by other taxpayers, such as property owners. For Pennsylvania, the cost is about $270 million.
The legislation passed by the Senate would restore some fairness to the marketplace. Unfortunately, the House Republican majority is signaling that the bill is in trouble. Speaker John Boehner (R., Ohio) has said that the measure would unduly burden small Internet retailers.
But if the speaker is concerned about undue burdens, he should consider the long-standing unfair disadvantage to brick-and-mortar retailers, many of which have gone out of business after being undercut by Web retailers. And what exactly does Boehner consider small? The Senate bill would affect only those online retailers with more than $1 million in out-of-state sales.
Some have argued that the Senate legislation would amount to a new tax or a tax hike. It wouldn't. Rather, it would simply do more to enforce an existing tax. Currently, federal and state legislators are essentially helping online customers dodge sales taxes.