Taxing the 'Net
In 2012, Internet sales in the United States increased 16 percent to $226 billion. In an economy of our size, such sales are dwarfed by the brick and mortar numbers. Many retailers, in fact, ring up sales on both sides.
To say online sales are a threat to Main Street businesses might not be accurate overall. In certain industries, however, the threat is real.
Growth in the online sector isn't surprising. Many people appreciate the convenience of ordering items from their home and having them delivered to the front door. And you don't have to pay sales tax, either.
Traditional stores can't do much about the convenience factor. If a customer couldn't care less about service during or after the sale, no amount of discounting will get them out of their recliner.
But it will take an act of Congress to address the uneven playing field created by applying sales taxes or not. That body was the one that gave Internet businesses the free pass. This week, the Senate is at least considering a bill to level the field.
We're encouraged by this. Common sense should dictate that a roll of tape or a recliner might vary in price because of the merchant's decision. That is pure competition and free market in action. But the 4- to 10-percent sales tax surcharge should be levied no matter where the purchase is made.
Currently, online customers are required to self-report and then pay that tax -- an action few take and nobody enforces. The tax on in-store purchases is collected by the merchant and remitted to the state. That action is automatic, and closely monitored. The Senate bill would force online retailers to collect and remit in the same manner.
"While local, community-based stores and shops compete for customers on many levels, including service and selection, they cannot compete on sales tax," said Matthew Shay, president and CEO of the National Retail Federation. "Congress needs to address this disparity."
As with most commonsense issues, there are opponents. Heritage Action for America, the activist arm of the conservative Heritage Foundation, believes it to be a tax increase and forces online retailers to become tax collectors. We don't share their perspective.
Nor do we side with Internet businesses that are opposed.
"I hope you agree that imposing unnecessary tax burdens on small online businesses is a bad idea," eBay President and CEO John Donahoe said in a letter to customers. "Join us in letting your members of Congress know they should protect small online businesses, not potentially put them out of business."
If that's the only advantage they have -- an artificial suspension of sales taxes all other companies must deal with -- then they deserve to go out of business. We hope the Senate does remove the difficult-to-rationalize free market intrusion.
But before the bill gets too far, we would encourage at least two changes to the legislation.
The first is the current exemption of businesses with less than $1 million in online sales. Such distinctions are not made on Main Street. The smallest of mom-and-pop establishments are required to charge, collect and remit sales tax on all the goods they sell.
The second would take into account states that have zero sales tax. Delaware, Montana, New Hampshire and Oregon do not levy general sales taxes. If they're not going to do it on Main Street, there's no reason to do it online.
With those provisions in mind, we strongly encourage Congress to push through the proposed law.
It's a matter of fairness.
Editorial by Patrick Lowry