We’ve bought commerce online for years without giving a percentage to the government, but tax-free online shopping is now endangered. The Senate is preparing to vote on legislation that will close the “Amazon Loophole,” a tax gap that allows online retailers to avoid charging sales taxes on most purchases.
The Washington Post reports:
Online retailers have been able to undercut the prices of their non-Internet competitors for years. Over time, shoppers learned that they could browse products in the aisles of a Best Buy, only to click “purchase” on their smartphones for a tax-free deal from an Internet retailer.
As states have become more strapped for cash since the recession, local officials have fought back. New York passed an “Amazon tax” in 2008 that forced the giant online retailer to collect sales taxes from shoppers who live in the state, even though Amazon didn’t have a brick-and-mortar presence there.
Others followed suit. Nine states require Amazon to collect sales taxes, including California, Pennsylvania and Texas.
The bill introduced by Sen. Mike Enzi (R-Wyo.), called the Marketplace Fairness Act, would grant all states the power to collect taxes from out-of-state vendors selling goods to their residents.
States are so eager to see the funds that some have already passed legislation that counts on Congress approving the new law.
The Maryland state legislature passed a measure this year that raises the gas tax to help pay for transportation projects. The bill calls for raising the gas tax even more — unless Congress passes some version of the Marketplace Fairness Act.
Off the Charts agrees with the legislation, claiming it will assist low-income families. The publication lists three reasons why the Amazon Loophole benefits wealthier Americans.
Not only is the prohibition unfair to local businesses — which must collect sales taxes — it imposes costs that many people might not recognize, as I describe in the post:
It slows local economies and costs jobs. Sales taxes typically range from 5 to 10 percent, so local businesses start out at a 5 to 10 percent price disadvantage compared to Internet retailers that don’t collect taxes.
When local stores lose sales to Internet retailers, the least that happens is that they don’t hire as many people as they would if their sales were higher; at worst, they go out of business. In both cases the damage ripples through the local economy, as lower employment for the bookseller or clothes boutique translates into lower sales for the local restaurant and dry cleaner.
It weakens public services. Each year, about $11 billion in tax on Internet sales goes uncollected. That’s $11 billion that states and localities don’t have to support schools and hospitals, pay and equip police, build and repair roads, and provide the many other services that all residents use. And, as online shopping continues to grow in coming years, so too will the revenue losses.
It shifts more taxes to those who can least afford them. Even apart from the Internet sales tax issue, poorer families pay a larger share of their income in sales taxes than better-off families do because they have to spend almost everything they earn. Tax-free Internet shopping compounds the problem: many low-income families would love to shop online to avoid sales tax but can’t because they don’t own a computer or can’t afford high-speed Internet access.
The Marketplace Fairness Act has bipartisan approval and will likely pass the Senate.