Suppose you’re a retailer struggling to make ends meet and teetering on the brink of bankruptcy. A customer walks into your store, picks up one of your widgets, looks on the back, writes something down on a piece of paper, sticks the paper in his pocket, returns the widget to its rack and walks out the door.
You know exactly what just happened. The customer wrote down the model number, then went home, logged onto the Internet and bought the widget online without paying sales tax. Meanwhile, you’re one step closer to going out of business.
The bipartisan Marketplace Fairness Act, introduced in the U.S. Senate last week, would level the playing field for bricks-and-mortar retailers who are fighting a losing battle with their competitors in the cyberworld. If the act is approved, as it should be, the 45 states with state sales taxes (including Washington) could require online retailers that sell more than $500,000 a year to collect sales taxes regardless where those retailers are based. Current law allows states only to tax Internet retailers that have a physical presence — a store or an office — in that state.
The Washington State Department of Revenue estimates the impact of this act would be an estimated $483 million during 2013-2015, including $306.5 million for the state and $176.5 million for municipalities. Keep in mind, this would not be a tax increase per se. We prefer the definition proffered in a recent editorial by The Herald in Everett: It’s a tax that ought to be due and isn’t being paid.
One might suspect that online retailers are furious about the Marketplace Fairness Act, which is scheduled for a Nov. 30 hearing by the House Judiciary Committee. To the contrary, Seattle-based Amazon.com Inc. supports the act. Other retailers that are both brick-and-mortar and online also on board. When similar legislation was introduced at the state level a few years ago, Walmart, J.C. Penney and the National Retail Federation expressed support.
Speaking of state action a few years ago, here in Washington the Legislature approved the Streamlined Sales and Use Tax Agreement in 2008. Because of that law, Washington could start collecting sales tax from online retailers within 90 days if the federal law is passed.
Bipartisan sponsors of the Marketplace Fairness Act include Republican Sens. Mike Enzi of Wyoming and Lamar Alexander of Tennessee, and Democratic Sen. Dick Durbin of Illinois. The support from both political parties is easy to understand. For Democrats, it’s a source of revenue. For Republicans, it’s a states’ rights issue. Implementing the new law would be up to each state.
And for both parties, this is a matter of fairness for struggling retailers. Enzi himself is a former owner of a shoe store in Wyoming. He remembers how customers would exploit retailers and use information gathered at stores to purchase products free of sales tax.
Enzi also addressed the argument some would make that retailers should simply learn to live with less: “Live with less, so that out-of-state retailers can live with more? No, I don’t think that’s a legitimate one to ask your out-of-state businesses to put your in-state businesses out of business.”
Across the nation, states could lose more than $23 billion in uncollected sales taxes in 2012 because of online purchases, according to the National Conference of State Legislatures. If an online retailer wants to come into Washington and do business, fine. Bring it. Welcome to the competition. But they should be required to play by the same state rules that govern in-state retailers.
We hope the Marketplace Fairness Act is adopted, so that Washington’s companion legislation can take full effect, to the competitive benefit of in-state retailers and to the budgetary benefit of the state.