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Online sales tax

A cushy tax break that online shoppers have always enjoyed might soon be coming to an end -- which is good news for retailers with physical stores.

Brick-and-mortar chains have long complained that e-commerce retailers like Amazon (AMZN) enjoy an unfair competitive advantage since they're not obligated to collect sales tax, enabling them to offer consumers lower prices.

But now, congressional support for a bill that would give states the authority to collect sale tax from online retailers is gaining momentum.

The House Judiciary Committee is expected to hold a hearing this month on the bill, dubbed, the Marketplace Equity Act, although a date has not been announced, according to the National Retail Federation.

The retail trade association is a major advocate of the bill, and even launched a campaign in May to raise awareness of the sales tax fairness issue.

If the bill becomes law, e-commerce shoppers could see an estimated 5% to 10% increase in the cost of their online purchases, according to reports.

A Blow to Online Shopping?

E-commerce in the first quarter of 2012 accounted for 4.9% of total retail sales, according to Census Bureau data. Nonetheless, online shopping is the fast-growing segment of the retail industry.

"The fact is, a significant factor in the growth of Internet sales is due to consumers not having to pay taxes," Frank Dell, president of consulting firm Dellmart & Company, said during RetailWire's online forum on the topic when the bill was first introduced last year. "This helps the consumer justify ... spending money and having to wait for the purchase to be delivered," he said.

"The net effect of this act will increase consumer costs and reduce total consumer spending, increase Internet retailers' operating costs and slow Internet growth sales," Dell predicts.

Other industry watchers think the change will simply level the playing field between online retailers and their brick-and-mortar brethren.

"I doubt that there are many online shoppers [buying] for the tax savings! Convenience, selection, better utilization of time, free shipping (where applicable) etc, etc, are all much stronger motivators than saving the state taxes," J. Peter Deede, a partner with Deede MacDonald & Associates, a consultancy to the consumer packaged goods industry, said during the forum.

Nonetheless, "as with any cost change there will be some negative impact on Amazon and other online businesses," he said. "But talk to me a year from now and see where they are."

The irony is that while online heavyweights such as eBay and Overstock.com oppose the bill, Amazon is supporting it. That's because the e-tailer, which now collects sales taxes on purchases made in a handful of states where it has a physical presence, is expanding its network of warehouses so it can offer shoppers same-day delivery in some areas.

Online marketers have until now been exempt from collecting sales tax if they lack a physical presence in the state where a customer lives.

Because the expansion makes paying state sales tax an inevitability for Amazon, the retailer has come out in favor of a national law that requires its online competitors to collect and pay those taxes too.

If the bill is passed, and the no-sales-tax perk no longer factors into purchasing decisions, consumers will simply gravitate more pointedly to the stores that offer the best shopping experience, said Gene Hoffman, president and CEO of executive training firm Corporate Strategies International. "If every transaction has a sales tax, the retailer with the perceived best combination of price, service, value and fashion will win ... and the selling will go on," he said.

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The brick and mortar stores also have the disadvantage that requires customers to buy gasoline to get to their stores. Let's charge the internet customer a gas fee. The customer can honestly state how far he or she would have had to travel to buy the item and the internet can send the fee to the local retailer.

December 19 2012 at 6:53 AM Report abuse rate up rate down Reply

Let's see here, 1 plus 1=2. Pretty simple to understand. Put an average 5% tax on all internet sales & within 2 months, the government will announce a 5% drop in retail sales, get it? There is only so much money to go around. Don't understand this concept, just thing every week when gas prices go up and the media says it will slow retail sales.

July 20 2012 at 10:32 AM Report abuse rate up rate down Reply

This article seems to pit brick and mortar stores against those bandits - online sellers. Lets not forget many brick and mortar stores ALSO sell online, so the old argument about internet sales negatively effecting traditional retailers is not always true.
Depending who will have to collect and remit the sales tax, dealingl with various state departments of revenue will tell the tale of how many online sellers continue their operations. If big boys such as Ebay and Amazon will handle the whole deal, then I predict online sales will continue robust. If it is left up to the sellers, I predict a dramatic decrease of those willing to handle this feat.

July 18 2012 at 8:34 AM Report abuse rate up rate down Reply

I have been selling on line in State of Missouri.. and I pay sales tax on all Missouri Orders I get.. It is no biggie. I don't mind paying sales Tax.. It goes to the good for my home state.. No problem.. I have NO negative problems with it.. I'm an older person.. and I am Glad I am helping my state with what Missouri Orders I get.. If people made big bucks off of their online sales.. Quit complaining.. Be Glad you are making enough with your online business.. to pay Taxes.. Why I Have a Missouri Tax number.. My State put this into being 2 yrs ago.. I will pay again this year.. and I hope my money helps.. All states are hurting.. If you don't like the activity of the laws and the rich is getting richer in your state? Complain.. Write nasty letters to the local Newspaper.. Vent your concerns.. Just remember. when you order Catalog? you pay shipping and sales Tax.. so what is the biggie???

July 18 2012 at 1:09 AM Report abuse rate up rate down Reply
1 reply to grandma's comment
Scott Solheim

I believe that you would have to pay state sales to to every state that you sell to? Maybe I'm wrong. But, if that's the case, you will have a whole lot more paperwork to do. Every state has a different sales tax.

July 18 2012 at 1:55 AM Report abuse +1 rate up rate down Reply

Duh? More sales taxes would just mean lower spending and reduced production.

What the states make in extra taxes will just go to more unemployment benefits, more food stamps, more public housing and more welfare services.

Face it, America is being taxed out of existance. The American people themselves can no longer afford to buy American made goods and are doing without American provided services.

July 18 2012 at 12:29 AM Report abuse +1 rate up rate down Reply
1 reply to jebby1's comment

No internet sales tax puts local business out of business, do you believe that to be good policy? As for american made goods, they exist, but are difficult to find, and have been since 1980 when china was made a Fair Trade partner.

July 18 2012 at 7:46 AM Report abuse rate up rate down Reply

They should be taxing all religions

July 18 2012 at 12:02 AM Report abuse rate up rate down Reply

I sell online and in my brick & morter shop. I dont mind charging the tax we do already for in state sales but i can just imagine what a cluster F@%K the paperwork is going to be like for this deal.

July 17 2012 at 11:42 PM Report abuse +2 rate up rate down Reply

Leave it up to Congress to screw up a good thing.

July 17 2012 at 11:15 PM Report abuse +2 rate up rate down Reply

What the National Retail Federation, Congress and every other proponent of this bill fail to recognize is that every tax dollar, no matter the title, comes from us, the taxpayer and consumer. These proponents can hail passage of this law as an achievement in equity and fairness, but all it does it take more money from our pockets and puts it in the hands of the government. BS!

July 17 2012 at 11:06 PM Report abuse +3 rate up rate down Reply

i prefer to shop online. but if they put in the sales tax, i'll probably wait for the sales, or not get some of the junk i order..

July 17 2012 at 10:29 PM Report abuse rate up rate down Reply