In a new editorial, Bloomberg.com comes down firmly on the side of online sales tax collection:
There are lots of good reasons to shop online, but dodging sales tax shouldn’t be one of them. Amazon.com Inc. (AMZN) is battling the authorities in its largest state market, California, over this principle. The good arguments are on the Golden State’s side.
Among those good arguments, the article cites the following:
- Local retailers have to collect sales tax while online retailers don’t, putting local retailers at an unfair disadvantage: “Brick-and-mortar retailers have been fuming about this disparity for years. “We’re at a huge competitive disadvantage with online retailers,” says Bill Dombrowski, president of the California Retailers’ Association. “It’s bleeding us.”
- States are losing millions of dollars in uncollected taxes: “California’s fiscal experts aren’t happy either. State Assemblyman Charles Calderon estimated that California was missing out on $83 million a year in sales tax that wasn’t being collected by Amazon. (The state asks taxpayers to compute their online tax obligations as part of annual income tax filings, but hardly anyone does.)
- Sales tax is necessary to pay for vital community services: “It’s important to remember, though, that sales tax isn’t just a nuisance charge you pay every time you eat at a restaurant, buy a T-shirt or get your car’s oil changed. In the 45 states that charge sales tax, these levies are a major way of paying for roads, police, teachers and other services.”
Note, however, that one of the first points the editorial makes includes several inaccuracies, which we’d like to clarify:
Online stores rang up more than $170 billion of purchases last year, accounting for about 9 percent of all retail sales. That’s a far cry from these merchants’ tiny start in 1998, when Congress granted a three-year reprieve from taxation, believing that the fledgling Internet sector needed help getting started.
This is a reference to the Internet Tax Freedom Act, which prohibited any new or discriminatory taxes on Internet access. It did not, however, prohibit the collection of existing sales or use tax on e-commerce transactions (as our friend Michael Mazerov at the Center for Budget Policy and Priorities points out).
We also believe that the $170 billion in online purchases in 2010 is too low a figure. Although it is based upon Census Bureau data, it doesn’t include other remote retail transactions including mail-order purchases ($106 billion) and online auctions ($75 billion—eBay’s 2010 Gross Merchandise Volume, per this source); when those figures are included, the number more than doubles, to approximately $350 billion in sales for which sales tax is not collected. (See our January post on the Census figures for more.)
Here’s the math: at an average national sales tax rate of approximately 6.8% (not that we are suggesting there should be a national sales tax!), that’s $23.8 billion in uncollected sales tax. (For those of you who follow this debate, that number probably looks familiar: it’s the one lawmakers and politicians frequently cite.)
The editorial concludes:
In pushing the referendum, Amazon has been arguing that California needs to do more to attract business, not drive it away. That’s doubtlessly true, but it’s hard to see how lenient tax treatment for online retailers furthers that goal. As the sponsor of California’s new law rightly put it in May, “If you oppose this bill, you support tax evasion.”
It’s a terrific statement of support for California and online sales tax collection from a pro-business source. The only thing that could have made it better is if it had voiced support for federal legislation, which is the best way to ensure all retailers follow the same sales tax collection rules and at the same time provides an incentive for states to simplify their sales tax collection guidelines.
Nevertheless, we’re thrilled to see Bloomberg take an unequivocally positive stance in favor of online sales tax collection.