Sales Tax Revenue Decline Spurs Media Support for E-Fairness

Most retailers have been hurt by the ongoing recession, but there is one retail sector that appears immune to the struggling economy: Internet retailers. Studies by the National Retail Federation found that average spending this Black Friday decreased from last year, but Internet sales increased by about 14 percent on the Monday after Thanksgiving, known as "Cyber Monday." For states and local communities depending on sales tax revenue to fund crucial services, this is anything but good news.

As numerous editorials in the past week have noted, states are losing crucial sales tax revenue as residents buy online and many remote online retailers eschew their legal duty to collect and remit sales tax despite having a physical presence in the state. Additionally, by allowing remote online retailers with nexus in the state to sell products without collecting sales tax, states are not only subsidizing out-of-state retailers, they are giving them a significant advantage over their own in-state retailers who do collect and remit sales tax.

With states across the country facing bleak economic forecasts and budget shortfalls, more media outlets are speaking out in support of e-fairness. Over the past week, a number of newspapers around the country joined the New York Times in publishing editorials, op-eds, and articles regarding sales tax equity.

• An editorial in the Sun Journal in Lewiston, Maine, noted: "We have, of course, nothing against online and telephone retailers. One of the best in the land, L.L. Bean, is headquartered here. But we continue to object to the unfair advantage online retailers enjoy over their traditional Main Street brethren. While the local person running a shoe store or gift shop must charge a five percent tax at the point of sale, out-of-state e-retailers need not."
  
  The Sun Journal continued: "Here's the problem: online sales are growing by leaps and bounds year after year. Traditional store sales are not. Ultimately, if the trend continues, state governments will lose bigger and bigger slices of their sales tax revenue. That affects the services offered to a state's residents and, potentially, the other taxes they pay.
  
  "As states around the U.S. struggle to fund operations, we can't believe more are not thinking of ways to close this expensive and unfair tax loophole. The original argument was that the Web retailing was new and it needed a sales-tax exemption to grow. Obviously, growth is no longer a problem."

• In an editorial published on Friday, December 4, Dubuque, Iowa's Telegraph Herald said: "Most states -- including Iowa, Illinois, and Wisconsin -- have a 'use tax' that consumers are supposed to pay on out-of-state purchases in which sales tax is not collected. Most online companies don't have to collect state sales tax, so -- no surprise -- they don't. But consumers are supposed to pay the state what it is due in use taxes.... Almost no one pays the tax.... But that doesn't make it right. Every day we read stories about how states are struggling to maintain programs and services with decreasing revenue. Here's an area where states are missing out on tens of billions of dollars in tax revenue nationwide."
  
  The Telegraph Herald stressed: "Local stores also have to compete with online retailers who have the advantage of not charging sales tax. It just isn't fair," and the editorial concluded that it is time to end the special treatment.

• An editorial by the California alternative-weekly Chico News & Review described how television news shows touted the success of Cyber Monday "with wall-to-wall coverage that noted that 36 percent of sales over the Thanksgiving weekend went to online retailers." The newspaper stressed, however: "Missing from the hype was any mention of the glaring advantage online retailers have over their brick-and-mortar counterparts: They're not required to collect sales tax, which in California means they have a built-in price advantage of anywhere from 8.25 percent to 10 percent. Sales tax is supposed to be paid on purchases, but sellers aren't required to collect it. Instead, customers are supposed to keep their receipts and at tax time pay whatever is owed. Know anybody who does that? We didn't think so."
  
  California's Board of Equalization estimates that the state suffers an estimated annual revenue loss of $1.1 billion in unpaid taxes owed by online purchasers, "and the amount is certain to grow significantly in coming years," said Chico News & Review. The editorial concluded that it makes "no sense" to allow California's sales tax inequity to continue.

• On the Jacksonville.com Interact Blog, Florida Times-Union Business columnist Abel Harding wrote: "The National Retail Federation is forecasting total retail sales will decline one percent during the holidays. Online sales, however, are projected to rise. Forrester Research Inc. expects them to grow to $44.7 billion this year, an increase of 8 percent.
  
  "Online growth, while an overall boon for the U. S. economy, leaves local retailers at a competitive disadvantage as they struggle to compete with retailers that don't have the expense of brick and mortar and don't collect Florida sales tax. That also places the state on the losing side of a shift in consumer behavior."
  
  Harding continued, "Amazon.com, the online giant whose revenues have nearly doubled to $19.2 billion in the past three years, refuses to collect sales tax in Florida because the company says that doing so would be 'excessively burdensome.' Amazon's local competitors, who likely find the collection of the state's sales tax 'burdensome,' already are unable to compete with the company on a level playing field, particularly when Amazon also chooses to waive shipping costs....
  
  "Consumers, though happy to avoid taxes, ultimately will suffer when the state is forced to cut essential spending -- or make up the shortfall via other taxes -- because of declining revenues."
  
  
• In Mississippi, The Democrat editorial "City losing money" stressed: "Mississippi tax collections are down over seven percent, and yet Mississippi and other states continue to let a growing revenue source slip through the cracks. The source: Internet sales tax....
  
  "When we ask about solving the problem, we are given political double-speak from both state and federal personnel."
  
  The editorial continued, "We want it fixed. Every time we run over a pothole, we wonder if the missing tax revenue could have repaired it. Congress can fix this. It would help all 50 states and countless cities."
  
  The Democrat concluded: "Local businesses deserve a level playing field, and our city deserves its rightful share of sales tax revenue."

• In Tyler, Texas, KLTV reported about "tax-free online shopping" and how it is causing problems for local businesses. "The tax-free online competition is tough for local businesses, which also have the burden of paying high overhead costs," the station noted.
  
  "[A]s more people have high-speed Internet and access on their phones, brick-and-mortar stores are facing an uphill battle for your dollars, and our local economy could suffer if the Internet wins."

• The San Diego Union-Tribune article "Online Tax Advantage Shortchanges State," noted how a decline in sales tax revenue is hurting California: "As millions of Web surfers jammed into online shopping sites yesterday -- drawn by the cut-rate prices of Cyber Monday -- the surge in Internet sales didn't bring cheer to traditional stores or to state and local tax collectors.
  
  "The reason: Online retailers are not required to pay sales taxes on out-of-state shipments, which not only gives them a competitive advantage over their bricks-and-mortar rivals but also deprives cash-strapped state and local governments of needed revenue.
  
  The Union-Tribune added: "California loses an average of $1.1 billion in sales taxes annually because of online sales -- despite a 74-year-old law requiring customers to pay 'use taxes' on purchases from out of state, according to a report issued yesterday by the state Board of Equalization, which oversees tax collection."
  
  Noting that 38 percent of Southern Californians plan to do holiday shopping on the Internet, the newspaper observed, "[F]ew Californians bother following the law. The Board of Equalization estimates that it is only collecting one percent of the use tax that is due on Internet sales. And as Internet sales grow bigger, the tax deficit is growing larger."