By Mark Stayton
State and local governments strapped for cash and small retail businesses struggling to compete with online businesses may find a bit of relief soon in the form of a proposed measure that would close a sales tax loophole for online businesses.
On March 22, 75 U.S. Senators -- including majorities of both parties -- approved a budget amendment that if enacted would allow state and local governments to require online retailers to collect sales and use taxes on online purchases.
The Marketplace Fairness Act is currently in the Judiciary Committee in the House of Representatives, and an identical bill would still need to be passed in the Senate for the act to take effect.
Currently, online retailers are only required to collect sales and use taxes in states where they have a physical presence, such as a store or distribution center. The law is a product of the 1992 Supreme Court decision Quill vs. North Dakota, which took place before the Internet was the thriving marketplace it is today.
Washington and 23 other states use the Streamlined Sales and Use Tax Agreement -- which provides standard definitions to retailers for what should be taxed and sets up a structure for them to collect and remit taxes to states -- but the agreement doesn't require retailers to do so, said Mike Gowrylow, communications director for the state Department of Revenue.
Revenue estimates that local and state governments would collect $284 million from 2013 to 2015 and $845 million from 2015 to 2017 if the legislation is approved.
"It's very important," said Gowrylow. "This would help stabilize our sales tax base that's always being eroded by online competition."
Large chain stores like J.C. Penney and Wal-Mart support the bill. Those large retailers have physical stores across the country and have to collect sales tax online, anyway. Amazon.com also endorsed the legislation, according to marketplacefairness.org.
U.S. Rep. Suzan DelBene, one of the original sponsors of the Marketplace Fairness Act, said people who buy online are supposed to pay sales and use taxes independently after their purchase, though this rarely happens in practice.
"You technically owe it anyway," said DelBene, former head of the state Department of Revenue. "This would allow it to more realistically be collected."
She said new software, similar to the type that instantly calculates shipping, will allow online businesses to calculate what local taxes go along with a purchase depending on where the buyer lives.
Gowrylow said the bill could help level the playing field between brick-and-mortar businesses and online retailers, as buyers would have to pay sales tax on all purchases regardless of where they are bought. He said it could also help cut down on "showrooming," where customers inspect products inside a store and buy them online.
DelBene visited several shops in downtown Mount Vernon Friday to talk about the bill and field questions from local business owners.
Pamela McNaughton, owner of the Tattered Page Bookstore for 12 years, said she supports the bill, though she said sales tax is not as big a worry as price differential for online businesses that don't have to pay for rent and shop upkeep.
"With Amazon and Kindles, anything that levels the playing field is a good thing," McNaughton said, noting that Amazon does charge sales tax for Washington buyers online.
McNaughton said the bill might also help decrease the number of people who browse her products in the store, then buy them online to save money.
Dan Wilson, manager of Strauss Jewellers downtown, said competition for all types of discretionary income has increased in the last 20 years, thanks in part to low prices offered by online retailers. He said he supported the bill because it would allow existing taxes to be collected by all businesses.
"Overall I feel like it is a fairly fair tax," Wilson said. "The technology should be relatively easy to implement."
Not all business owners DelBene visited Friday approve of the bill. David Ebersole, owner of Skagit Lapidary Supply and different online-only business, said people shop online for lower prices rather than to avoid sales tax. He said charging sales tax would decrease online commerce.
"Internet stores have less overhead " Ebersole said. "People buy from stores online cheaper because they don't have all the other financial responsibilities of a brick-and-mortar store."
DelBene said she thinks this bill will be more successful than a similar version that did not pass through the House or Senate last year.
She said additional support from businesses, policy input from different states and an exemption for online businesses that make less than $1 million in revenue -- along with bi-partisan support in the Senate -- may bring a close to the Internet sales tax loophole once and for all.