Earlier this week, the U.S. Senate passed, by a wide margin, a bill that would let states collect sales tax from online retailers.
The way sales taxes currently work is that, if you buy something online, youre supposed to fess up to it when you file your tax return and pay the sales tax yourself. Online businesses dont have to collect sales tax for a particular state unless they have a store or warehouse in that state.
The problem is, people dont report such purchases, and theres no practical way for states to track just who bought what – except for people who buy tax-free cigarettes online.
Supporters of the online tax proposal say it will level the playing field for traditional retailers because, in Indiana, for example, people who buy online get an automatic 7 percent discount because they avoid the sales tax.
Online retailers, meanwhile, are complaining that if they have to collect the tax, it will be a nightmare because states have different tax rates and theyll have to mail tax payments to different states every three months.
Im not particularly moved by that. These businesses are all computer-based, so it shouldnt be that hard.
As far as Im concerned, leveling the playing field is not part of the governments motivation. Its all about trying to collect taxes they are missing out on, and though it might not be right that some people have to pay sales tax and others dont, I have a hard time feeling sorry for governments when they start poor-mouthing.
I wonder about the retailers and whether they are really put at a disadvantage. What is the real threat to retailers here? The fact that they have to charge sales tax or that online retailers can undercut their prices? What Ive heard is that an increasing number of shoppers have gotten into the habit of visiting local stores, looking at items, asking a lot of questions, getting a lot of advice on the best product to buy, and then going home and ordering it online.
I visited a local retailer Im familiar with and asked them about the topic. Does it happen? Do a lot of customers eat up a lot of your time and then buy things online?
Oh, yeah, I was told. All the time. Every day.
Some are discreet. They ask a lot of questions and then say theyll think about it, leave and never come back.
Others, though, are pretty brazen, I was told. Theyll look at a variety of brands of a particular item, and then pull out a cellphone, call up the item on the Internet and order it right there.
Its hard to compete, I was told. Online sellers might have a warehouse and a handful of workers who run around all day filling orders. Brick and mortar retailers have employees and rely on customer service. Its a lot more expensive to employ dozens of experienced employees than a handful of warehouse runners.
But brazen Internet shoppers arent all bad, I was told. At least a sales person can ask a potential customer what theyre paying online, ask about shipping costs and then make a counter offer.
But what about sales tax? I asked.
It doesnt even come up, I was told. Its all about online pricing.
Whether or not the online sales tax law will pass isnt clear. If it does, it does. If it fails, it fails.
Im not as worried about sales tax collections as I am the local retailers.