Like many parts of modern life, the Internet has made local sales taxes much more complicated than they once were.
In the days before e-commerce, sales taxes were fairly straightforward. Let’s say a customer named John walks into his local bookstore. John picks up that hot, new fiction title on everyone’s bestseller lists. The friendly cashier rings up his purchase, which is $27. She then applies a 10 percent sales tax, making the total $29.70.
The bookstore’s owners pass that sales tax to the state, which keeps a portion and passes the rest back to the city where the purchase was made.
The city then applies its sales-tax collections into items that benefit the bookstore and others in town. For instance, our customer John traveled to the store on a well-paved road that was partially paid for by sales taxes. The city’s police and fire departments stand ready to protect the store and its employees and customers in the event of an emergency.
A portion of a city’s sales taxes often funds public schools, which produce employees and consumers, both of which are needed by the bookstore.
No tax is perfect, including sales taxes, which disproportionately harm low-income residents. Yet, sales taxes support many things that help businesses and customers in a very efficient way.
Enter the Internet.
Now our customer John can sit comfortably in his easy chair, a computer resting in his lap, and buy books from his favorite online retailer. More times than not, John and millions of other e-shoppers aren’t paying sales taxes on items purchased online. And that is putting a squeeze on local and state governments that depend on sales taxes to fund their budgets. By one estimate, cities and states are missing out on at least $12 billion annually in uncollected sales taxes.
The system looks unfair as retail outlets like the bookstore in John’s hometown continue to collect sales taxes while their online competition does not.
A bipartisan coalition in Congress would like to help local governments and their local businesses. The Marketplace Fairness Act would force online retailers to collect sales taxes based on the location of the consumer and then pass that money back to states and municipalities.
Yes, please, say elected leaders in Alabama.
No way, say opponents of the Marketplace Fairness Act, who argue that under the current system, nothing is stopping the brick-and-mortar businesses from competing with their digital rivals by selling online sans sales taxes.
Meanwhile, cities are seeing revenues dry up because of a loss of sales taxes. Demands on city services are not slowing up, however. Millie Harris, a member of the Anniston City Council, summed up the situation: “No one is happy about paying taxes, but everybody wants services.”