For the past 20 years, online retailers have been exempt from collecting sales tax from customers who live in states where the retailer does not have a physical presence. While the preferential treatment was meant as a way to encourage retailers to expand their businesses by selling their products online, it has given online-only businesses an unfair advantage over brick and mortar stores.
Congress is one step closer to ending the unfair treatment that has only succeeded in putting local retailers out of business. The Marketplace Fairness Act was passed by the Senate and is awaiting a vote by the House of Representatives. Unfortunately, the law is not getting the bipartisan support in the House of Representatives that it received in the Senate. Lobbyists for the online retailers are working hard to make sure this bill doesn’t pass.
The Marketplace Fairness Act does not create new taxes. It only requires businesses who sell products online to collect sales tax from their customers. Because most consumers do not understand that they are supposed to pay their own sales tax when an online retailer doesn’t add it to their purchase price, states are not collecting the tax money they are due. The way the law stands now, states are unable to enforce their own sales and use tax laws on purchases made online.
The change in the law will give brick and mortar retailers equality in the national marketplace. Local business owners will be able to compete with online retailers without being concerned that customers will come into their business to browse and ask questions, then go home to purchase the product online. Local businesses will not be forced to close their doors because they cannot compete with the lower prices being charged by online stores.
As much as $23 billion dollars in sales tax can be infused into state and local governments every year with the passage of the Marketplace Fairness Act. This money can be used to create jobs and improve infrastructure. Instead of cutting their budgets, state and local governments can hire new employees and provide necessary services to residents.