Late last week, Georgia’s state legislature passed a law requiring online retailers with affiliates in the state to collect sales tax. It will next go to the governor, who has said he will sign it. Georgia is a member of the Streamlined Sales and Use Tax Agreement, which means they have already simplified their sales tax laws to make it easier for retailers to collect sales tax.
When other states have passed these kinds of affiliate nexus laws, online retailers have responded by simply ending their affiliate relationships in the state. These laws end up hurting small businesses that rely on affiliate marketing income and do not bring in any additional sales tax revenue.
Interestingly, the National Conference of State Legislatures opposed the legislation, but not because they don’t support online sales tax collection:
The National Conference of State Legislatures opposes such legislation at the state level, and is lobbying for a federal law.
“States want to go after this money that’s owed to them, which is understandable,” Behlke said. However, he said, unless federal legislation is passed that gives states greater authority to collect the tax, states will continue to miss out on billions in revenue.
The NCSL is correct, federal legislation is best—and as state after state passes this kind of law (Georgia is the fourteenth to introduce such legislation), they send a clear statement to Congress that a federal law is desperately wanted and needed.
This quote from the president of the Georgia Retail Association neatly summarizes a few of the reasons so many states and retail associations favor online sales tax collection:
“The reality is that brick-and-mortar stores have a responsibility of collecting sales tax from their customers at the point of sale,” said Rick McAllister, president of the Georgia Retail Association and a proponent of the tax. “With the evolution of the Internet, most of our members who have Internet sales collect tax on their sites, but there are some who don’t. It’s not a new tax. What we’re asking folks to do is collect the sales tax from their customers and remit it to the state of Georgia just like all the brick and mortar stores do.”
In other words, bricks-and-mortar stores are collecting sales tax while online stores are not, creating an inequity that favors online store over their Main Street counterparts. And he makes an important point: Sales tax on online purchases already exists. If the online retailer doesn’t collect it, the purchaser is supposed to remit the tax on their own.
This fact isn’t well-known, as this quote from a Georgia shopper reveals:
Even when the rule takes effect, Hayes said she doubts it will deter her from shopping on the Internet, since she’s mainly in it for convenience.
“If I wanted to save money, I’d probably just go to a bricks and mortar establishment,” she said. “I’m paying so it shows up at my doorstep. If there’s an extra surcharge, I probably won’t even notice that I should be upset about it.”
But the fact is, this isn’t an extra surcharge. Shoppers are already supposed to pay sales tax whether they buy online or in local stores. With this law, that sales tax will simply be collected by retailers, taking the burden of calculating and remitting off shoppers.
Because so few know of this law and even fewer abide by it, states are losing a vast amount of revenue at a time when few can afford it. According to a report drafted by the Special Council on Tax Reform and Fairness for Georgia, the lack of online sales tax collection will cost the state $410 million in 2012 alone.
For all these reasons—because the current situation hurts Main Street retailers; because states are losing hundreds of millions in revenue; because a tax that is due is simply going unpaid—we expect to see more and more states join Georgia and the thirteen other states that are calling for online sales tax collection, until a federal law is finally passed.
Georgia’s Governor Deal should follow Maine’s Governor LePage’s recent example and reach out to Senators Johnny Isakson (R) and Saxby Chambliss (R) to urge them to support the Marketplace Fairness Act (S.1832).