Walk into most retailers in the country and your receipt will show how much you paid in sales tax on your purchase. Order the same product online, and in many cases, it’s gone.
Supporters of the Marketplace Fairness Act, including co-sponsor U.S. Sen. Ben Cardin, D-Md., say that this disappearing act is only taking money out the pockets of retailers with a physical presence.
Improved Internet tax law, said Cardin, would’ve helped Maryland capture $375 million in revenue, enough to solve the doomsday budget crisis in Annapolis and eliminate the need for the special session of the legislature.
(A University of Tennessee study estimates that Maryland will lose approximately $184 million in uncollected sales and use tax revenues from remote sales in 2012, according to a Department of Legislative Services presentation last year, page 20.)
Survey shows public support
According to a study conducted by the National Retail Federation, an umbrella group of more than 100 national and international retailers, 60% of Americans believe state sales tax should always apply to online sales.
Although the NRF represents stores with a storefront as well as catalog and Internet sales, the trade association has launched an intensive 60-day media campaign to “level the playing field” for brick-and-mortar “Main Street” businesses.
A series of U.S. Supreme Court rulings have found that states cannot tax sales of merchants that do not have a physical presence in the state, and Congress extended that in a 1998 law. Previous attempts to change the law at the federal level have failed.
Despite support of the e-fairness bill though, an increasing number of shoppers are going online to avoid the tax.
“It really hurts to spend time with a consumer in our store and watch them walk out the door with their phone in their hand saying ‘I think I’ll buy it from this place on the Internet,’” said Jim Adams, owner of Baltimore’s Falls Road Running Store. Adams appears in this video by the trade group.
Ultimately, says Cardin, this only hurts the state’s retailers. “Maryland retailers aren’t looking for special treatment but simply a fair way to compete against large Internet sellers who charge similar prices but get away without collecting sales tax.”
Retail supports one-fifth of jobs in every state, about 742,000 jobs in Maryland. Directly and indirectly this accounts for about 16% of the state’s Gross Domestic Product.
“The $24 billion in lost sales tax is revenue badly needed by cash-strapped state and local governments to pay the salaries of essential workers such as police officers, firefighters, ambulance crews, and schoolteachers,” the National Retail Federation reported. “All of those public workers are among retailers’ customers, and when customers lose their jobs retailers lose sales.”
Losses may only get worse
According to an online retail forecast report produced by Forrester Research, Inc., online retail shopping will increase 10% each year until 2016 accounting for 9% of total retail sales. This is up from 7% in both 2010 and 2011, the report said.
Aggressive merchandising and the increasing ubiquity of smartphones and tablet communications encourages more impulse online purchases, said Sucharita Mulpuru, a Forrester analyst.
Adams said that without an Internet tax the the gradual shift from in-person to e-commerce will result in a loss of customer-centric relationships.
“I think as the online business becomes a bigger and bigger part of the American shopping experience, the next generation’s going to lose that ability to go in and have a hands-on experience in a small specialty store because they’re not able to compete at at that broad national level,” Adams said.
By Dana Amihere
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greg cunningham says
Know what else would have solved budget deficit besides raising taxes…..never mind.
First two word out of any politicians mouth is “raise taxes”.
It is amazing to me how they have SLASHED payrolls & benefits and yet the budget has grown 155% in the past eigth years.
So is it a TAX problem or is it “Government Gone Wild”. Where did the billions go. Answer that before proposing another jobs killing tax increase.
Michael Hildebrand says
This is what happens when you price yourself out of the market. I do feel for the businesses in Maryland but the bottom line is Annapolis is the one putting Maryland Businesses out of competition with other retailers. I look for the best deal I can find and if I can save 6% on the total cost of a purchase, well then so be it. The state does the same thing when it puts contracts out for bid. If one bid is 6% less than another, the lowest bid wins, whether the winner is a Maryland based company or not. Retailers do the same thing when they are looking for a product to re-sell. So when the Maryland Business groups start lobbying for better laws for them to be more competitive, they better start with the high taxes here in Maryland. I buy as little as possible in Maryland because of taxes and tolls. Why should I spend $4 more on a toll on top of the extra 6% on a sale when I can click it on the web and have it shipped to me. Why not take my business to Delaware where I can buy it cheaper, whether it is goods or gasoline or anything else. The lawmakers in Annapolis must really think the people of Maryland are fools for………….oh, wait a minute………………the people did vote them in. Never mind!
Keith Thompson says
It’s interesting that you mention “Tax Free Delaware”. By carrying Cardin’s argument to it’s extreme; if its unfair for Maryland business to lose business due to tax free internet sales and the solution is to apply state sales tax to those sales, then why not subject Maryland residents to a sales tax on items purchased in Delaware? If the 6% sales tax is unfair to Maryland business and is driving consumers to the internet (or across state lines), the solution for competing in the marketplace is to cut or eliminate the tax.
S Pennington says
Mr. Hildebrand: bravo! a fine summary of the fix in which we find ourselves.
Mr. Thompson: too late! we’re already supposed to be paying use tax on items we purchased outside of MD upon which sales tax was not levied. Don’t you actually read you MD income tax return before you sign it? All you have to do to comply with this law is save all of your receipts from out of state and internet purchases, figure out what’s taxable and what’s not (but what isn’t, these days?), add it up and put that number on your income tax return, and mail it in with a check. What else did you want to do with all your free time?
As for me: with each tax increase, I’m that much closer to moving out of state. I work too hard and commute for too long to justify sending Martin O’Malley any more of my money. The bum hasn’t even called me to thank me yet for the huge check I sent him in 2010… or 2009, or 2008, or 2007, or…
William Rudek says
I agree with many of Mr. Hildebrand’s points. How is this a “poor little retailer story?” There are two completely unrelated issues that are trying to be forced into one. Since the state is unable to trim the fat from wanton spending, they fly the flag of the “poor retailer;” local MD businesses being sidelined by the big bad Internet. Are we not in a free market economy? I love the plea to “level the playing field” for “Main St. Businesses.”
If this were a true concern, no big box stores would exist in the state at all. Importing cheap plastic crap that sells ten times cheaper than the local retailer is fine as long as its taxed?
What about seafood? Shrimp and other goods are harvested cheaper overseas because foreign governments will subsidize the fishermen. We then import their goods tariff-free and put it on the shelf next to Gulf shrimp, caught by Americans who paid for everything from the boat to the bait to the fuel. Foreign, import tax-free shrimp is dollars cheaper but somehow that’s ok with MD consumers? How about we fix some of these huge iniquities to “level the playing field” before adding another tax? Or better, force the state to actually cut the excess and get the budget under control. Unless I see the state government giving contracts and business strictly to MD based business 100% of the time, I can’t even believe they would expect ths argument to carry any weight at all.