Like many bricks-and-mortar store owners, Morgan Harris, who owns the Oklahoma City cloth diaper and eco-friendly baby store Green Bambino, laments the fact that Internet retailers don't collect sales tax.
Technically, shoppers are supposed to report any sales tax they might owe on their state tax forms each year, but most don't, Harris said.
“It's money that the consumers already owe, so why wouldn't you just shift the burden of payment from the consumers to the sellers,” Harris said. “We are used to doing anyway — it's part of our business model.”
Harris was part of a group of Oklahoma City business owners who traveled to Washington, D.C., in 2011 to talk with lawmakers about forcing Internet retailer to collect sales tax.
Pending legislation in Congress called the Marketplace Fairness Act would require large Internet retailers to collect sales taxes — a problem that state and local officials say costs Oklahoma millions of dollars in tax revenue each year.
Many retailers complain of the practice of “show-rooming,” where shoppers will visit a bricks-and-mortar store to test out a product and then purchase it on the Internet to avoid paying sales tax.
Generating local sales tax revenue is one more reason to support local merchants, Harris said.
“If you don't pay sales tax, that money isn't going to pay for things like police and firefighters — those things are at risk,” she said.
Sales tax gap
The Oklahoma Tax Commission estimates that the state loses from $185 million to $225 million in tax revenue from Internet sales each year.
“However, that's a difficult estimate to make because of the fact that this is money that isn't being paid,” said Paula Ross, spokeswoman for the Tax Commission.
Oklahoma City Mayor Mick Cornett estimates that the city loses more than $10 million each year in sales tax revenue from Internet sales.
“That would pay for 100 firefighters or 100 police,” Cornett said.
Cornett has long been a supporter of having Internet retailers collect sales taxes for the states as cities across the country are struggling more than ever to cover the cost of public safety and new infrastructure.
“This is not a new tax — this is tax that is currently owed, but there's no proper way to collect the tax,” Cornett said. “Many municipalities get over half of their revenue from sales tax — if we don't figure out a way to collect what is owed, we are not going to have money for police and firefighters.”
Online retailers fight back
Internet retailers claim that requiring them to collect sales tax for the states would force them into a complicated maze of the thousands varying sales tax rates set by local governments across the country.
Like most Internet retailers, Oklahoma City-based American Precious Metals Exchange, or APMEX, which touts itself as one of the world's largest online precious metals dealers, collects sales tax only in states where it has a physical presence — Oklahoma and New York.
APMEX began a partnership with eBay last year to become the auction website's official bullion seller. eBay is one of the Marketplace Fairness Act's biggest opponents and eBay CEO John Donahoe has emailed millions of the site's users asking for support.
The Marketplace Fairness Act would require the company to comply with sales tax rules for thousands of tax jurisdictions across the country, said Michael Haynes, APMEX CEO.
“It's an unbelievably daunting to virtually impossible task,” Haynes said “In some states, the tax rate is different in every county or city — where is the fairness in that?”
Haynes suggests that states look at raising income or property taxes instead of forcing online retailers to collect sales tax to fill their coffers.
“I don't really have a solution at the moment — but something needs to be done without states reaching outside of their borders,” he said.
Oklahoma City resident Joe Adamson, an eBay certified education specialist who maintains the e-commerce blog unclejoeradio.com, calls the Marketplace Fairness Act the “Marketplace Unfairness Act.”
He believes the legislation would create barriers for small online businesses like eBay sellers from expanding their presence for fear of having to comply with complex new sales collection rules.
The bill in its current form would allow small online retailers — those with less than a $1 million in annual sales — to avoid having to collect sales tax.
Small retailers may look to make just below $1 million in sales to avoid the sales tax trigger, because it would be too burdensome to keep up with sales tax collections for multiple states, Adamson said.
“It creates artificial barriers.” Adamson said. “If they are doing more than $1 million a year, the way they are going to respond to this particular issue is that they are going to dump two employees and sell $950,000 a year — when it gets to that point, they will just turn the spigot off.”
It's money that the consumers already owe, so why wouldn't you just shift the burden of payment from the consumers to the sellers.”
Green Bambino owner