Would online sales tax level the playing field for bricks-and-mortar stores?

Spfahey writes:

http://www.accountingtoday.com/news/Congress-Mulls-Online-Sales-Tax-Legislation-60981-1.html 

As a frequent shopper on Amazon.com, this potential legislation will affect me quite a bit and I am conflicted. I would have no problems with paying a sales tax on my purchases. I personally use Amazon because of its ease and convenience and not because I don’t have to pay sales tax.

At first glance I think this legislation would make complete sense. Dan Marshall, the owner of Marshal Music makes a very compelling case; “Matching or beating the price of a competitor—regardless of whether it is a bricks-and-mortar store or an online shop—is part of retail. Always has been and always will be. But what I cannot do is tell the customer that I do not have to charge them the state sales tax. In fact, if I did that, I’d find myself audited, fined and potentially thrown in jail.””

 Though the chairman and CEO of Overstock.com, Patrick Byrne believes that the “Passage of such legislation would curtail the emergence of the next innovative e-commerce company and poison the Internet’s fertile ground for growth and innovation” it appears that it is unfair competition to let online retailers avoid charging for tax, and I also would not want to stifle any innovation that would be beneficial for consumers overall as well. I am not exactly sure what would be best.

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About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

10 comments

  1. I, myself, feel torn when it comes to this debate. In trying to answer this post, I found this article which I thought was helpful. http://www.statesman.com/news/texas-politics/state-lawmakers-grapple-with-online-sales-tax-issues-1357333.htmlI can see both sides of the argument. Government can collect sales tax from these purchases and retailers won't feel as if consumers are just using their store to test products and then go buy them via internet where there is no sales tax. Unfortunately, if I consider fairness, I would have to agree with the retailers. Being a past store manager to a retail store, I understand the difficulty of making sales and competing with lower prices online and one would be surprised as to how many people use the stores to test the products and then go online to purchase for a better deal. With that said, the state should impose sales tax on these purchases so that all vendors, whether online or physical stores may be on an even playing field. As for reclaiming millions from Amazon and other online vendors because the state hadn't imposed this sooner, I think poses a huge inconvenience and should not be done.

  2. There should be a flat Federal sales tax for all and that goes to the Federal government.That would even the playing field for everyone and would increase government revenues.

  3. But Anonymous, if there were a Federal sales tax, how would the states make up for the loss?

  4. I believe that there should be a sales tax on online purchases. After reading Yvonne’s comment, she brings up a valid point. Retail stores are already dealing with the inconvenience of customer’s trying out the product in store and then making the purchase online to save money. However, you must also take into account the opposite side of the spectrum. Working in retail myself in high school, there was the opposite issue where online sights imposed a minimum spending to get free shipping. For example, spend $50 or more on your order and get free shipping. Customers would spend the $50 or more to get their one article of clothing and be eligible for the free shipping, and then return the remaining products in store. Therefore, retailers, online or not, will always be affected by people trying to “beat the system.” When thinking about whether or not to impose an online sales tax you cannot think about people trying to get out of paying the tax, because people will always be creative when trying to pay less. This situation is purely about what is ethical, and it is ethical to make the playing field level by imposing a sales tax on online purchases.

  5. I think I am in agreement with Yvonne and smile, I think we should be paying sales tax on online purchases. I will admit I have looked at items at BestBuy and then bought them on Amazon.com. It really wasn't for the sales tax savings though, it was because Best Buy was charging too much for the product I wanted. I have been trying to understand Patrick Byrne's argument about decreased online innovation, and I just don't see it. I may be missing something, but if someone builds a great website where people are willing to spend money, then they won't care that they are paying a state sales tax. I think zappos.com proves that point. They are generally more expensive than other online retailers but people keep buying from them because they like the experience they get with zappos.

  6. I also agree with Yvonne, smile, and spfahey. We should be paying sales tax for online purchases from Amazon or eBay. It is unfair to all the other small business owners who have to collect and remit state sales tax that online retailers like Amazon and eBay do not have to pay sales tax. This gives them an unfair advantage and allows them to attract more customers and create more sales because they don't have to charge sales tax. This fact can be influential on higher priced items where the sales tax can be pretty hefty. Overall, every retailer should have to collect and remit sales tax to states. If this legislation doesn't pass, many traditional stores might go out of business, people will lose jobs, and states will be hard pressed to find revenue.

  7. There are three main reasons why I purchase things online that no one has mentioned:1)One can buy used objects. I don’t always need/want to buy the latest edition or a new edition of a book or movie. This is not even a possibility in bricks-and-mortar stores.2)There is a lot more availability. Chances are, if you can’t find something online, you will not be able to find it anywhere else.3)Reviews. I am a big fan of reviews and always do extensive research on everything before I buy it. This is not possible at bricks-and-mortar stores. Who are you going to ask? A sales associates who wants to sell you something? All the convenience factors set aside, I think bricks-and-mortar stores have a much stiffer competition when it comes to online stores, and if anything, they should be the ones getting a break. It’s incredible that online stores were able to get away for so long without charging a sales tax on online purchases. While I do enjoy paying less by shopping online, I don’t want it to because they are “above the law”.

  8. "I think bricks-and-mortar stores have a much stiffer competition when it comes to online stores, and if anything, they should be the ones getting a break."That is a very good point Blackswan87. I think we will eventually see an online sales tax. I am not exactly sure how it will work though. Will customers have to pay the sales tax in the state where they live or will it be based on company location? In any case, when it happens, I wouldn't be shocked if we eventually raised the tax on online shopping and lowered it for specific city's or states to encourage shopping and job growth in the area.

  9. I've actually discussed this with my fellow tax associates and I feel it all comes down to nexus within each state. Do they have a right to charge a tax to this online entity, especially since the company resides online? I honestly feel like it would be fair to tax them, and although it may hurt the business model of companies like Amazon, the reality is why should they receive the tax benefit?

  10. While I definitely can sympathize with companies that currently do a large majority of their business online being against a sales tax on ecommerce, I have to agree that it is long overdue. I absolutely think that ecommerce needs to face taxes similar to those of other industries. This should have been enacted from the beginning of internet business transactions. The fact that this is being enacted now is what allows me to sympathize with companies that oppose this as they developed their business and have operated under the guidelines in place and have every right to oppose changes that will negatively impact them.

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