Bill may level field for retailers
Published 12:04 am Thursday, April 26, 2012
A local retailer said Wednesday federal legislation that would require web-based retailers to collect sales taxes would not only help area merchants, but also help build roads and bridges.
Alabama Gov. Robert Bentely is supporting the Marketplace Fairness/Equity Acts — federal legislation that would level the playing field for all retailers and close the online sales tax loophole. His support won him praise from the Alabama Retail Association (ARA).
The ARA said online-only retailers, such as Amazon.com and Overstock.com, exploit a loophole in the tax code that pre-dates the Internet and allows them to forgo collecting sales tax at the point of purchase as their brick-and-mortar counterparts are required to do. This gives online retailers an average 8.33 percent and as much as a 10 percent price advantage over Alabama small businesses, putting many businesses at a disadvantage.
“The bills will not create a new tax, nor will they require states to raise taxes,” said Gov. Bentley in a letter to the state’s congressional delegation. “Rather, the bills will give Alabama the authority to collect sales taxes – as we currently do from local brick-and-mortar retailers – that are already owed from online retailers.”
Bentley said it would all the state to effectively close the sales tax loophole and “help both our state’s finances and our state’s small businesses.”
For retailers like Mike Ward, owner of the specialty clothing and accessory store Ward & Co., that’s good news.
“For me, it’s about clothing,” Ward said. “I have people come in and try on everything from Polo to North Face jackets. They find what they like and then order it online. There’s no sales tax collected, and then, oftentimes, you can get free shipping. That’s a big savings.”
Ward said it’s something that most “brick-and-mortar merchants” experience.
“I’ve noticed an upswing the last five or six years of people coming in and trying the stuff on. I can tell they really like the item, but they don’t buy it and never come back.”
Like Bentley said the Marketplace Fairness and Marketplace Equity Acts do not create a new tax. Rather, these bills require online retailers to collect sales taxes that are already owed when consumers make online purchases.
For the past 20 years, states have been unable to enforce their own sales and use tax laws on sales by out-of-state, catalog and online sellers due to the 1992 Supreme Court decision Quill Corp v. North Dakota.
Congress has been debating solutions for more than a decade, and some states have been forced to take action on their own, leading to greater confusion and further distorting the marketplace. Because this is a matter of interstate commerce, organizations like the ARA are urging Congress to grant the authority needed for states to enforce sales tax collection and remittance from out-of-state sellers.
Currently, Alabama residents must calculate state and local sales taxes that are owed for online purchases and then remit payment. The pending federal legislation creates a streamlined method for state and local sales taxes to be paid at the online point of sale.
Under the Marketplace Fairness Act, online sellers with less than $500,000 in remote sales annually will be exempt from collection requirements. Under the Marketplace Equity Act, online sellers with less than $1 million in remote sales annually, or less than $100,000 in remote sales in a specific state, will be exempt.
Earlier this year, a University of Alabama at Birmingham analysis predicted Alabama would lose more than $1 billion over the next five years unless laws were enacted to prevent the loss of sales and use taxes from online purchases.
“Basically, it’s not competing fairly,” Ward said. “At a store, you’re looking at 8.5 percent tax. That money adds up. Sure if you order things online you don’t have to pay it or you may get free shipping, but that doesn’t help us pave our roads and fix our bridges.”