Economic analysis: Online sales tax collection may benefit the economy

August 6, 2012
Briefing.com Research

Briefing.com’s report on the Marketplace Fairness Act suggests it could have a positive impact on the economy, particularly retail jobs

The research arm of the live market analysis firm Briefing.com has issued a report on the effects the Marketplace Fairness Act would have on the economy, including both corporate and government perspectives.

We do recommend reading the entire report—it’s a nicely evenhanded analysis that avoids some of the overwrought rhetoric we’ve been hearing lately—but for those of you who just want the highlights, here you go:

Some lobbyists for the online retailers are contending that these new requirements are actually a new consumption tax. That is not necessarily true.

All 45 states that have sales taxes require consumers to collect the tax on online transactions themselves and submit them when filing taxes each year. States, however, lack proper enforcement gauges and audit abilities. Thus, most consumers understate the sales taxes they actually owe.

The benefits to state and local governments and brick-and-mortar retailers should outweigh the decline in consumers’ disposable income.

State and local governments currently have nearly $3.0 tln in outstanding debt. While the recovery of lost tax revenue will not be enough to pay off the debt, it will help prevent more cuts to projects and services until the economy fully recovers.

On the business side, retailers like Best Buy (BBY) will see their prices become more competitive with online retailers. That should boost overall retail sales, increase profits, alleviate pressure to cut payrolls further, and improve hiring conditions.

At the same time, online retailers, like Amazon, generally do not have large workforces or sales staffs. The loss of online sales will lower online retailer profits, but should have few negative effects on overall employment levels.

That means the collection of sales taxes by online companies should result in a net gain in aggregate wages as stronger employment levels at brick-and-mortar establishments more than offset the potential losses from online retailers.

. . .

From an economic perspective, there is little negative impact—and perhaps some positive impact—from an increase in tax revenue and a more level playing field in the retail sector.

From a corporate perspective, the battle is only in the initial stages. As the political story plays out, other online retailers are likely to go the route of Amazon (and eBay) by negotiating regional/state agreements to mitigate the impact of potential tax increases.

At the end of the day, online retailers have gotten away with not paying/collecting taxes. Eventually, that will come to an end.