An online sales-tax proposal has triggered a divisive debate among business owners and attracted a strange-bedfellows mix of supporters that includes the Dayton Area Chamber of Commerce and Democratic U.S. Sen. Sherrod Brown.
The “Marketplace Fairness Act,” which will be voted on by the U.S. Senate as early as Monday, would require Internet retailers with more than $1 million in out-of-state sales to collect sales tax on purchases made online.
Proponents say the legislation will eliminate an unfair advantage that online retailers currently enjoy over bricks and mortar shops, thereby leveling the playing field and saving Ohio-based jobs.
Opponents say it would stifle competition and add an unfair burden on Internet retailers by forcing them to become revenue collectors for 9,600 sales-tax jurisdictions in America — each with its own set of rules and filing requirements. And they say legislators who support the legislation are voting for a tax increase.
A true battle of titans has emerged with retailers’ groups, small-business owners, Walmart and Amazon.com squaring off against the likes of eBay, a collection of small businesses called Web-Enabled Retailers Helping Expand Retail Employment and anti-tax groups such as Americans for Prosperity and Americans for Tax Reform.
The stakes are high. The National Council of State Legislatures estimates that in 2012 alone, states lost out on a collective $23 billion because they were not able to collect sales tax revenue on remote sales. Ohio’s portion of that bounty exceeded $628 million. And a 2011 study by the University of Cincinnati found that the loss of taxes from Internet sales cost the state of Ohio about 11,000 direct jobs that year.
Depending on who you listen to, the law is either a long-overdue measure to equalize competition to better reflect the buying habits of the modern consumer, or an attempt to stifle commerce and penalize states like Oregon and New Hampshire that do not currently have a sales tax.
For now, states can require stores to collect sales taxes only if the store is physically located in that state. The Marketplace Fairness Act would give states the additional authority to collect sales taxes on Internet purchases, although businesses with less than $1 million a year in sales (and thus the small eBay seller) would be exempt.
Sales taxes would go to the state where the shopper lives, meaning a shopper in Ohio who buys from an online retailer in Michigan would see their sales tax go to Ohio.
Many states — including Ohio — have laws requiring shoppers to pay sales taxes regardless of whether they bought the item in a store or online. But that requirement has never really been enforced and Gordon Gough, executive vice president and CFO for the Ohio Council of Retail Merchants, said fewer than 1 percent of the population actually abides by that rule.
“It would be impossible (to know),” he said. “Unless you go through everyone’s credit card statements.”
In three procedural votes leading up to this week’s scheduled up-or-down vote, the legislation has received support from about two-thirds of the members of the U.S. Senate, including both Ohio senators. But Caitlin Dunn, a spokesman for Sen. Rob Portman, said the Ohio Republican is still examining the bill’s impact and has not decided how he will vote on the final version. Portman, she said, “will not support policies that excessively burden businesses and consumers.”
Most experts expect the bill will easily pass the Senate, but its fate in the GOP-led U.S. House of Representatives is less certain. If it does pass there, however, it will likely become law since President Barack Obama has already indicated his support.
In Ohio, House Republicans recently added language to the state budget bill that positions Ohio to collect the tax should Congress pass the Marketplace Fairness Act.
Business vs. Business
The issue has meant business owners who usually see eye to eye on political and economic matters are on opposite sides of the fence.
Matt Howitt — vice president of Next Lift Inc., a Moraine company that sells, services and rents forklifts and other material-handling equipment — strongly opposes the legislation because he says it will burden small companies such as his. Howitt said he does about 90 percent of his business on the Internet.
“The economy is still struggling as it is,” Howitt said. “Now they’re trying to turn small businesses into revenue enforcers and tax collectors.”
Next Lift ships products “all over the country every day” that have been purchased online, Howitt said. And the company’s employees don’t have the time or resources to fill out tax forms for the 9,600 tax jurisdictions in the U.S. “That doesn’t help create jobs,” Howitt said. “It stops jobs.”
But Nikki Hanes, general manager of P & R Communications Service in downtown Dayton, supports the tax plan because she says the current system penalizes companies like hers. P & R Communications sells two-way radio and wireless broadband equipment and, like other bricks-and-mortar retail stores, charges sales tax on its commercial sales. That gives Hanes’ online competitors an immediate 6 to 7 percent advantage in pricing, she said.
“We have enough competition on margins alone,” Hanes said. “I would like to see an even playing field for all of us when it comes to sales taxes.”
John Marshall, vice president of retail operations for Grismer Tire Company, said he has frequently encountered customers who come into one of Grismer’s 24 stores in the Dayton, Springfield, Fairfield and Columbus areas, price the tires his company sells, then head out to buy the same product online. They do this, he said, to avoid paying sales tax.
“It’s put us at a decided competitive disadvantage,” said Marshall, “People are telling us flat-out that they’re going to end up buying (a product) and having it shipped in because they could save on sales tax.”
In the end, the fate of the bill will likely depend on which business group best sells their narrative of fairness.
Norman Singleton of the Campaign for Liberty, which opposes the Senate bill, said the measure would cause online retailers to raise prices twice — once to add the taxes, and again for compliance costs. While a provision in the bill would allow businesses to receive free software to handle different state tax rates, Singleton questions whether the cost of providing such software and the hassle of using it might be an onerous burden.
“It’s certainly going to raise taxes, raise costs and raise the cost of doing business online,” Singleton said.