Pro-con: Should online retailers collect sales tax?

Retailers compete with one another every day on price, service, convenience and selection. But under the current system, the law gives remote sellers a singular advantage that brick-and-mortar stores can’t match because they aren’t required to collect sales tax. As stores have lost business, communities have lost much-needed jobs. In Ohio, for example, a recent study found that leveling the playing field for local retailers could add 15,000 jobs to the state’s economy. Forcing online retailers to collect sales tax also would provide revenue for cash-strapped state and local governments – more than $23 billion this year nationally, according to the National Conference of State Legislatures. In the Senate, Democrats and Republicans sponsored a bill called the Marketplace Fairness Act that would require online retailers to comply with state sales-tax laws. To avoid burdening smaller merchants with compliance costs, the bill exempts online retailers with less than $500,000 in annual sales. In other words, casual sellers just looking to make a few extra bucks on eBay would have nothing to fear. During this time of economic challenge, Main Street businesses across America already have paid their fair share. Now online retailers should, too. – Matthew Shay, National Retail Federation

There is no “sales-tax exemption” for out-of-state vendors. State and local sales taxes are owed by consumers, not producers. If the good or service is provided by an in-state firm, that firm must collect the applicable sales tax from the consumer. If the stuff comes from a “remote” seller that has no contact with the consumer’s state, the sale is not “tax-free”: The consumer owes a “use tax” equivalent to the local sales tax. However, state and local governments would rather not trouble their own citizens with enforcing that rule. Thus they demand a federal law that would allow them to impose collection and remittance obligations on out-of-state sellers whose goods or services happen to be demanded in, and therefore end up in, the local jurisdiction. What we have here is not a tax or equity problem but an enforcement problem. And no one, including the state officials and federal legislators who yelp about “fairness,” seriously believes that problem warrants a central solution. – Michael S. Greve, American Enterprise Institute