This past Monday, close to $2 billion worth of merchandise was sold online in the United States. The biggest online shopping day of the year got only bigger, jumping an estimated 18 to 20 percent.
Not the first cent of sales tax was paid on most of these Cyber Monday transactions.
Meanwhile, brick-and-mortar stores, whose sales are taxed at the point of purchase, saw sales rise only a couple of percentage points during the Black Friday weekend preceding Cyber Monday.
Might there be a connection? Could it be that the price advantage created by this disparate tax treatment is helping to drive business from in-store sales to online, and pinching local governments in the process?
If there ever was an excuse to treat these two kinds of transactions differently for tax purposes, it no longer exists.
E-commerce is a large, established and growing presence. Even though face-to-face purchases still exceed online ones by about 7-to-1, the gap is steadily narrowing. Jeff Bezos, CEO of Amazon.com, thinks his company is on track to be the dominant player not just in e-commerce but all commerce. Amazon and others like it shouldn’t be getting a price break over the traditional stores from which they are stealing business.
That realization is slowing taking hold at the state and federal levels.
At the same time that online retailers were racking up sales on Cyber Monday, the Supreme Court in New York said it would not block a lower court’s decision to force out-of-state Internet sellers to collect and remit sales tax the same way that in-state businesses do.
The ruling could have ramifications beyond New York. It could encourage other states to do the same, given their concerns over the amount of revenue they have been losing to Internet and catalog sales. The National Conference of State Legislatures puts the figure at more than $23 billion last year, and almost certainly it’s grown even larger in 2013.
There’s also been movement in Congress to do something. Earlier this year, the Senate passed a bill, aptly titled the Marketplace Fairness Act, that requires Internet retailers doing more than $1 million in sales annually to collect state and local sales taxes based on where the shopper lives. Under present law, only Internet retailers with a physical presence in a state are required to collect sales taxes for that state. So far, the House has yet to act on the legislation.
Although anti-tax zealots object to the initiative, taxing Internet transactions is not actually creating a new tax. It is only creating a workable mechanism for collecting a tax that has been largely ignored.
In Mississippi and most states, buyers are supposed to pay use tax on purchases for which the seller did not collect a sales tax. Most individuals either don’t know about the law or, if they do, simply ignore it. They understand that it’s almost impossible for the tax man to catch this infraction.
Having the Internet retailer charge sales tax is the only practical way to collect the money and to stop the unfair pricing advantage that e-commerce presently enjoys.
Editor and Publisher