The Marketplace Fairness Act or S. 1832, introduced last November by Senator Michael Enzi of Wyoming and now with 19 co-sponsors, indicates that “states should be able to enforce their existing sales and use tax laws and to treat similar sales transactions equally, without regard to the manner in which the sale is transacted, and to collect, or decide not to collect, taxes that are owed under state law,” according to this summary provided by the Library of Congress. In other words, even Internet sales would be taxed, although an exception would be made for some smaller retailers.
Supporters of the Act include (not surprisingly) a number of retail trade organizations, as well as The National Governors Association, the National Conference of State Legislatures, and the United States Conference of Mayors. Even Internet behemoth Amazon.com has thrown its support behind the bill.
Companies on both sides of the issue are, also not surprisingly, concerned about the impact to their own bottom lines. What about the overall economic impact? A recent analysis of the bill by Briefing Research, a strategic, data-driven investment research service, looks at that question.
“The Taxman Cometh Online” notes that while the average state and local sales tax rate tops 9.6%, state and local entities collect taxes at an effective rate of 6.8% of total sales. What’s more, that percentage has dropped from about 7.6% in 2000. “A large portion of the spread between the actual and effective rates was the result of stronger online demand, especially over the last few years,” the report notes.
As far as the idea that any requirements to tax online sales constitutes a new tax: not so in most cases, the report notes. Forty-five states currently require consumers to calculate and submit the taxes that they owe on online sales when they file their taxes each year. However, the states have no practical way of enforcing this requirement, and few (if any) consumers make the effort.
Implementing a mechanism for paying online sales taxes should allow brick-and-mortar retailers to become more competitive, of course. It may even boost retail payrolls, which have dropped about 5% since 2007, according to the report. While the imposition of online sales taxes may dampen hiring at Internet retailers, their workforces tend to be smaller than those of their brick-and-mortar counterparts, so the net effect should be positive, the report concludes.
To be sure, a number of Internet retailers have fought online sales taxes, citing the administration required to collect them, as well as the potential impact on sales. In addressing the first concern, Marketplacefairness.org had this to say: “[K]eeping track of a few thousand local tax rates is no longer an insurmountable technical, administrative, or financial burden—certainly no more difficult than calculating real-time-shipping, a common feature on most websites and online sales marketplaces.”
As far as the potential impact on sales, while a number of online retailers have mentioned it, it’s difficult to find an estimate of the likely scope. That’s not to suggest there won’t be any impact. Still, in surveys of consumers’ reasons for shopping online, convenience and the ease of comparison shopping tend to top the responses. Consider this 2011 survey of holiday shoppers by NPD Group: the number one reason (at 29%) consumers booted up their computers in order to shop was to comparison shop. The second most common reason (27%), was curiosity about the goods available. The third reason was to follow up on an item that was on sale. While some shoppers undoubtedly focus on sales tax savings, it appears to fall fairly low on their lists of reasons.