When President George H. W. Bush raised taxes in the 1990 budget deal, it not only meant breaking his “Read my lips” promise with the American people. It was also from that time forward that conservatives in Congress have opposed any and all tax increases.
But in 1990, most of the Internet did not have pictures and online retail was whatever forum was hot on CompuServe.
Now online commerce is the dominant force in retail—and while downtown or mall customers pay state sales taxes, online shoppers get off scot free.
There is now a major bill working its way through Capitol Hill known as the "Marketplace Equity Act" that has conservatives divided and debating amongst themselves whether to leave this disparity alone or to fix it—and will fixing it mean raising taxes.
The legislation, introduced by Rep. Steven A. Womack (R.-Ark.) offers one road forward, he said.
The bill would require remote retailers, except for smaller businesses exempted, to collect the state sales tax and send it in the same routine way businesses located in the state do, he said.
“Currently, as I trust most of you now understand, traditional retailers—I’ll refer to them as “brick and mortar” retailers—collect sales taxes on purchases made in their respective stores,” said the congressman in his July 27 testimony in favor of his bill.
“These taxes are remitted to the political subdivisions who levy them—typically by the state department of finance and administration. This is not an option for the retailer. It is a requirement,” he said.
Because of the Supreme Court’s 1992 Quill decision, there is no such burden on the sellers with no physical presence in a locality to collect that locality’s sales tax, he said. In its decision, the court directed Congress to devise a remedy, but two decades later nothing has been done.
“It is time this loophole is closed. Our bill, HR 3179, is purposed in doing just that. It is simple and straight-forward. It is not instructive—it is permissive legislation, just like the Quill Decision invited us to do,” said the former mayor of Rogers, Ark..
A bookstore on Main Street collects and remits the tax. Amazon.com does not.
Womack and his supporters argue that creates a disparity that encourages people to do their shopping online -- hurting traditional small businesses.
But, the thing Womack is most adamant about it that this is not a new tax, it is a more thorough collection of an existing tax.
“This is an existing, lawfully due tax imposed on consumers,” he said. “The difference is that it is paid to the traditional retailer at the time of purchase and the remittance is handled by the retailer. But for the online shopper, the obligation falls on him.”
Womack is not alone.
Tea Party champion Rep. Steven A. King (R.-Iowa), and two men on the short list for the GOP’s vice-presidential nomination, New Jersey Gov. Christopher J. Christie and Virginia Gov. Robert F. McDonnell each line up behind the Womack bill.
These three men take the position that small businesses have enough barriers to success and the disparate treatment encourages people to shop online rather than support their neighborhood stores.
But, it should be no surprise that Messrs. Christie and McDonnell are looking to broaden their tax base.
Christie said taxation of online sales an important issue to all the nation's governors and endorsed federal legislation giving all states taxing authority.
Even conservative opponents of the legislation agree small business owners have a point.
Jessica Melugin of the Competitive Enterprise Institute released a study on the legislation, where she concedes: “There certainly are inequities in the way online sales are taxed.”
But, like many opponents of congressional action to resolve Quill, Melugin said the Womack bill is worse than the disease.
Other long-term opponents of a federal requirement for the collection of state sales taxes, such as Amazon.com have come to support Womack, rather than have no regime in place.
With Amazon and others onboard, this could be the year parity is restored to retailers, before any more of our Main Street retailers go the way of CompuServe.