Yes, Small Business Wants Online Giants to Collect Sales TaxKathleen McHugh and Oren Teicher
Main Street brick-and-mortar shops are once again heading into the crucial holiday season with one hand tied behind their backs. They’re competing with online sellers such as Amazon.com, which doesn’t collect sales tax in more than 30 states, according to the Institute for Local Self-Reliance. Combined state and local sales tax rates range from 6 percent to 10 percent in most states and can top 12 percent in some cities, according to the Tax Foundation. It’s hard to compete if you have to impose this cost on customers while your online rivals do not.
In May, the Senate passed the Marketplace Fairness Act, which gives states the ability to require large out-of-state Internet retailers to collect sales tax, just as local brick-and-mortar stores must. Why hasn’t the House acted? The hesitation may be due in part to confusion about how this bill would affect small businesses. In a remarkable feat of inversion, opponents have argued in one op-ed after another that it would harm small businesses.
The opponents’ narrative is not true. The Marketplace Fairness Act is not the brainchild of large retail chains seeking to crush small businesses. Small retailers, including thousands of our members, first called (pdf) for legislation along these lines in the late 1990s. At the time, many national chains opposed our effort to make online sales subject to tax collection. Most have since come to agree with our position.
With each passing year, the scope of the problem has grown. Of the 500 retailers that did the most online business in 2012, two-thirds collect sales tax in fewer than 25 states, according to data published by Internet Retailer. These companies are big. They average more than $300 million a year in online orders.
Meanwhile, of the nation’s 583,000 retail businesses with fewer than 20 employees, 97 percent are brick-and-mortars subject to sales tax requirements, according to Census data. These small retailers employ 2.7 million people and pay $57 billion in annual payrolls. They keep our commercial districts lively and, through their purchasing, support myriad other local businesses and jobs.
Despite their crucial role in the economy, these businesses have been disappearing by the thousands. Among our members who have had to close, many cite Internet retailers’ sales tax advantage as a leading cause of their decline.
As for the remaining 3 percent of small retailers—some 19,000 Web-only and mail-order companies—all but a small fraction have sales of less than $1 million a year, according to Census data. They would thus continue to be exempt from collecting sales taxes under the “small seller exception” included in the bill passed by the Senate. For the rest, the bill eases compliance by requiring that states provide free software, which automates the collection process.
Despite the clear benefits to the vast majority of small businesses, opponents continue to try to muddle the question of whose interests this bill would serve. Many have pointed to Amazon’s support for federal Internet sales tax legislation as a sign that small businesses would end up the losers.
But Amazon’s position is neither new nor quite so simple. Ten years ago, the company lobbied for an earlier version of the Marketplace Fairness Act but, as the Washington Post reported at the time, pressed lawmakers to make changes to the bill, which ultimately derailed it. Those changes included eliminating the small-seller exception. Today, Amazon continues to push for reducing or eliminating the exception, a change that could once again undercut the bill’s chances.
Amazon also remains aggressively opposed to state Internet sales tax laws. In August, it petitioned the Supreme Court to overturn a New York law that requires Web retailers that use in-state sales affiliates, as Amazon does, to collect sales tax. It recently fired its sales affiliates in Maine and Missouri to escape similar policies in those states.
Amazon declined our request for an interview, and a spokesperson referred us to Amazon Vice President Paul Misener’s Senate testimony, in which he says that the company’s opposition to state Internet sales tax laws arises from its commitment to “the constitutional limitation on states’ authority … at the core of our Nation’s founding principles.”
We believe a level playing field is at the heart of our country’s founding principles and is central to both state and national interests. Small businesses are overwhelmingly disadvantaged by current policy. We hope that House members will recognize the urgency of this issue and act swiftly to tackle it.