Local business owners banded together Thursday in support of a national bill to require online retailers to collect sales taxes, a move that they said would make business more equitable and spur economic growth.
“I’ve seen firsthand the disadvantages of small business owners due to online retailers not collecting the sales tax that we’re required to pay,” LaLonde’s Bridal Boutique owner Linda Fields said in the showroom of her downtown Johnson City shop. “We operate physical stores in Tennessee, we employ people and we always collect sales tax. Online-only, out-of-state stores don’t have to collect sales tax, and because of this, they’re given a 10 percent price advantage over us.”
Fields, joined by Brandon Davis of Mahoney’s Outfitters, advocated the Marketplace Fairness Act of 2013 and outlined a recent study by economist Art Laffer that espouses the benefits of enforcing state sales tax levies.
Davis said online stores aren’t subject to the same labor and locations costs as physical retailers, which, when paired with the savings from no sales tax charges, automatically puts the latter at a disadvantage.
“A lot of people come in and want our sales pitch, which is part of our incurred costs on the sticker, and they walk out the door and use a couple of in-house clicks to save large amounts of money from our store,” Davis said. “We’ve become a fitting store for shoes; we’ve become an expert place for people to get information and then walk out the door and spend their money somewhere else.”
By state laws, customers of online and catalogue retailers are required to self-report and pay sales taxes on all items purchased, but few actually do.
The Marketplace Fairness Act, supported by Tennessee Sens. Lamar Alexander and Bob Corker, aims to collect those taxes, but only if states first streamline their tax codes to make implementation of the law more simple.
If the bill is approved, states hoping to collect the taxes are required to form a single office responsible for overseeing all state and local sales tax collections, simplify the tax codes and provide remote sellers with free software designed to calculate and automatically file owed taxes.
Online businesses with annual revenues less than $1 million are exempt from collecting the taxes under the proposed law.
Last year, speaking on behalf of the National Governors Association, Gov. Bill Haslam testified before the House Judiciary Committee, calling a similar bill a way to level the playing field for small brick-and-mortar businesses and to collect already-owed money that could be used by states to fund needed programs.
According to the Laffer study, which was funded in part by Let Freedom Ring, a conservative advocacy organization, the estimated loss of revenue in 2012 from uncollected sales taxes on e-commerce purchases was $13 billion nationwide.
U.S. Census data detailing retail sales shows $224.6 billion in online sales last year, about 5 percent of the $4.4 trillion in total sales reported.
Laffler predicts a significant boost to Tennessee’s economy and more than 45,000 new jobs created by 2022 if Internet and remote sales are taxed.
But some local businesses that conduct large portions of their business online say those numbers could be inflated, and say the new tax enforcement may have a negative effect on many small businesses statewide.
“First of all, bookkeeping would be considerably more involved,” BedInABox.com owner Bill Bradley said. “You’ve got so many different rates of sales tax in different states and even in different cities.”
Bradley’s company sells memory foam mattresses nationwide, compacting them significantly before shipping.
BedInABox.com has operated in the area for seven years, and recently moved its 26 employees and $2 million worth of investment to downtown Johnson City.
“For right now, I would oppose (the bill), but if we have to we’ll find a way to make it work,” Bradley said.
Chad Biggs, owner of the eclectic retail website jamminbutter.com said he has expected the tax legislation for several years, but said it doesn’t make it any easier to swallow.
“Like it does with most things, the government is behind the times and is way overcomplicating things,” Biggs said. “If they charged a flat sales tax nationwide it would make it a whole lot easier on everybody, because we could charge it and the send it in for one agency to divvy it out. The way they have it now, I can see some big fraud issues coming in and a huge expense to enforce it.”
He said the $1 million exemption limit may sound like a large amount, but said his company’s revenues significantly exceed the cutoff.
“Everyone tends to think about Internet companies pushing the mom-and-pop stores out of the marketplace, but the fact is, we’re a mom-and-pop operation,” Biggs said. “Not every small business is a gas station on the corner. We just happen to ship our products out instead of people walking in the door to buy them.”
If the Marketplace Fairness Act is enacted, Biggs said he expects more large retailers to relocate to foreign countries to avoid the new tax enforcement.
“Our biggest competition right now comes from people shipping from overseas,” he said. “Companies in China are selling directly to the consumers because of certain shipping policies that make it cheaper to do that.”
The legislation passed the full floor of the U.S. Senate in May, but should face a tougher fight in the House.
The bill was referred to a House subcommittee in April, but has not yet come to a full vote.