Should Internet retailers be required to collect state sales taxes?

Handout

YES

Jim Murphy

Executive vice president for Government Affairs & Public Policy, Burlington Area Chamber of Commerce

This is really an issue of fairness and of providing a level playing field for our Massachusetts retail businesses.

While “brick and mortar” retailers in Massachusetts are required to charge — with a few exceptions — a 6.25 percent sales tax on all purchases, Internet retailers with no physical presence in the Commonwealth have no legal obligation to charge sales tax.

The US Supreme Court found that states cannot compel Internet retailers to charge a sales tax if they do not have a physical presence in that state. While congressional action is required to address this issue, states can implement legislation to at least partially correct this inequity, as New York did in 2008.

Massachusetts is among the states that require Internet retailers with a business location in the state to collect sales tax. However, there are large Internet retailers with no physical presence in the Commonwealth whose remote sales directly impact the economic viability of small, independent businesses here.

Many of these local enterprises, often family-owned businesses, are the economic core of our municipalities. They hire residents, provide goods and services in a direct and personal manner, and contribute to our cities and towns in countless ways, from sponsoring youth teams to supporting local charitable causes.

Creating small businesses has helped many generations of Americans to achieve economic independence and success. But the rapidly changing landscape of the marketplace has made it more and more difficult for small businesses to survive and to grow.

Internet retail sales are adding to the challenge facing small businesses in Massachusetts and across the country. Not only is the small business at a disadvantage when competing with the Internet retailer’s tax-free remote sales, the time and labor to track, record, and report sales tax to the Commonwealth presents an additional economic burden.

Congress must take swift and clear action to end this economic disparity by enacting legislation requiring all Internet/e-commerce retailers to collect sales taxes for the states in which the purchases are made.

The Commonwealth has an obligation to ensure that any and all Internet retailers with a presence in the state are charging and accurately reporting sales tax.

As long as Massachusetts has a sales tax, the requirements for charging, collecting, and reporting should apply equally to all retail sales regardless of where the sale originates.

Handout

NO

Rick Green

CEO, 1A Auto Inc., Pepperell

The Marketplace Fairness Act (Internet sales tax) has been hailed by state governments as a cure to lower revenue during the economic downturn. Surprisingly, it is also supported by large retailers like Home Depot and Amazon.

The Internet sales tax is not new, though. Rather, it is an existing tax that goes uncollected. Most sales taxes in the US are actually “sales and use” taxes. That means that consumers buying goods on the Internet are liable for use taxes in their home state, but states don’t collect them for both economic and political reasons. Economically, collection costs exceed the potential revenue, and politically there are few elected officials willing to run on a platform of universal tax audits.

The Internet tax appeals to state and local governments because it solves the political problem. Using the federal government to force out-of-state businesses to collect taxes removes local politicians from the line of fire. The economic problem still remains, though. The exorbitant cost of collecting the taxes has simply been shifted onto businesses.

Let’s take the case of a $10 million ecommerce retailer. Using the Massachusetts sales tax rate of 6.25 percent as a proxy, this retailer has the potential to collect approximately $625,000 in sales taxes annually. According to the Tax Foundation, there are 9,998 state and local sales tax jurisdictions in the United States. That yields an average of $62.50 per tax authority annually, or a standard monthly remittance of about $5.21. Just imagine writing 10,000 checks for $5.21 each month. The cost of stamps and stuffing envelopes alone would lead to bankruptcy. Now it’s clear why large retailers are lining up behind the Internet sales tax: It will put their competition out of business.

The ultimate problem with the Internet sales tax however, is that it won’t actually generate any revenue. Most states collect more money from income taxes than sales taxes. The loss of payroll taxes and corporate income taxes due to small retailers going out of business or scaling back hiring will likely more than offset what little revenue is actually generated.

Finally, most small companies simply won’t collect the taxes. What state or city would really send a tax auditor to collect a check for $5.20? On second thought, perhaps businesses should keep a few thousand checks handy, just in case.