A national debate about sales tax fairness has arisen out of some states’ efforts to introduce sales-tax parity between brick-and-mortar stores and online retailers like Amazon. It’s high time we had this debate.
For years, governments have forced small, community-oriented retailers to collect sales taxes at the point of purchase while retail giant Amazon has been exempt. The result? Amazon enjoyed record revenues last quarter while small businesses shuttered their retail outlets at a record pace, leaving vacant downtowns where business districts once thrived.
It should never be government’s role to choose retail winners and losers. But that happened when Borders — once an Amazon competitor — closed its doors last month, leaving thousands of Americans unemployed.
Amazon claims its great fortune is the result of a better business model. It’s actually the result of terrible public policy that “distorts the economy, because it means that Internet-based companies do better for reasons unrelated to their ability to provide good products to consumers at low cost,” according to conservative columnist Ramesh Ponnuru of National Review.
Amazon relies on a good deal of misinformation to sell its story to elected officials and the public.
For example, Amazon claims forcing it to collect sales taxes, as other retailers are required to do, would amount to a tax increase. Not true.
State sales taxes are due on every purchase made online. But because Amazon is exempt from collecting it, the burden falls on the customer. That’s right: You owe taxes to your state government every time you purchase a book online. If you haven’t reported those purchases on your tax return and paid the sales taxes to your state, you –not Amazon — are in violation of tax law.
This tax regime artificially inflates the cost of consumer goods at small retail shops. As South Carolina Gov. Nikki Haley told Amazon during a May press conference, “Don’t ask us to give you sales tax relief when we’re not giving it to the book store down the street, or we’re not giving it to the other stores on the other side of town; it’s just not a level playing field.”
The Wall Street Journal recently reported that this tax disparity is so elemental to Amazon’s business that it forces employees to go to bizarre lengths to avoid what it calls “bad states” — states that would force Amazon to collect their sales taxes.
What’s the best way to reform tax laws, level the playing field, and make a pro-business outcome more likely? States should push for sales tax equity by requiring Amazon to collect the tax at the point of purchase — Amazon already does this in other countries — and then use the new revenue to lower sales tax rates across the board, for everyone.
This would bring fairness to Main Street businesses, and stimulate new sales through downward pressure on costs for every retail outfit, wherever you call home.
Betsy Burton is a small business owner. She runs The King’s English Bookshop in Salt Lake City and is the Co-Chair of Local First Utah. Betsy is also a member of the Alliance for Main Street Fairness.