Industry players are cheering the fact that the days of “tax-free” online shopping in the United States are numbered.
Last Monday, the U.S. Senate approved by a vote of 74-20 an amendment to support broader sales tax collections on Internet purchases.
Under current federal law, which largely predates the Internet, online retailers are required to collect sales tax only if they have a physical presence in the customer’s state. That has given many online retailers an unfair advantage over brick-and-mortar stores, since they get away with not passing on that cost to their customers.
President Obama also threw his support behind the bill, the Marketplace Fairness Act of 2013, which the White House said “will level the playing field for local small business retailers that are in competition every day with large out-of-state online companies.”
“It’s the right thing to do. It puts everyone on equal footing, as both [e-tailers and brick-and-mortar retailers] collect tax, which is as it should be,” said Ken Hicks, chairman, president and CEO of Foot Locker Inc. “It’s good for competition and good for the community.”
Independents retailers such as David Zaken, owner of David Z in New York, also applauded the progress of the bill. “This will level the playing field for sure,” he said.
For advocates of the bill, which include brick-and-mortar retailers and the industry groups representing them, its passage could not come sooner. After all, debate over taxing Internet sales has raged in Washington, D.C., for more than a decade without any resolution.
“This is fundamentally about fairness and the need for government to end its discriminatory sales tax policy that disadvantages local, community-based retailers in favor of remote and online sellers,” said Matthew Shay, president and CEO of the National Retail Federation.
He added, “Despite what the opponents say, this is not a new tax. A sale is a sale no matter the distribution channel. While local, community-based stores and shops compete for customers on many levels, including service and selection, they can’t compete on sales tax.”
As a result of the current system, states have lost more than $22 billion in annual sales tax revenue, noted David French, SVP of government relations at the NRF. And with e-commerce projected to grow between 9 percent and 13 percent in 2013, lost tax revenue is estimated to exceed $24 billion this year, he added.
Kevin Burke, president and CEO of the American Apparel & Footwear Association, headquartered in Arlington, Va., said the Marketplace Fairness Act creates a simpler and more predictable framework for collecting state sales taxes on online purchases, such as clothes and shoes.
“As our economy evolves with increasing speed, the ideal legal guidelines for a new commercial platform can take a long time to catch on. As online retailers continue to make sales all over the country, it is very important that we recognize a simplified system of state sales tax collection is better than facing a mountain of different requirements for every state in which an online retailer does business,” he said.
French quipped, “The government shouldn’t be the one to pick the winners and the losers.”
Online commerce giant Amazon.com has publicly backed the bill, to the surprise of some market watchers.
But Paul Misener, VP of Amazon’s global public policy, defended the company’s interest in sticking to a simplified taxation regime: “Fairness among sellers should be created and maintained. Sellers should compete on a level playing field. Quite obviously, state sales tax can be collected across state lines, and the technology is not limited to large sellers.”
He added, “Far from [being] an e-commerce ‘loophole,’ the constitutional limitation on states’ authority to collect sales tax is at the core of our nation’s founding principles.”
Other public backers of the bill understandably include such firms as Sears Holdings, Best Buy, Gap and Barnes & Noble — all chains with large store networks across the U.S.
Notably, however, e-tailers such as Shopbop.com, Zappos.com and Gilt.com all declined to comment when approached by Footwear News. EBay opposes the bill, according to the Marketplace Fairness Act website.