The online sales tax loophole isn’t just an unfair disadvantage for local businesses – it also prevents cities from collecting the taxes already owed to them on remote online purchases.
As we enter the season of gift-giving, local officials should be aware of an issue that costs their cities billions of dollars every year: the online sales tax loophole. Each year, an estimated $23 billion in owed sales tax goes uncollected from online transactions – funds that cities could use on public safety, fixing sidewalks, building libraries, and many more services for their residents.
Despite their necessity to our cities, local brick-and-mortar retailers compete at a five to 10 percent disadvantage to online sellers by collecting legally-required sales tax at the time of purchase – something online retailers are not required to do. In a year in which more people participated in Cyber Monday than Black Friday, this trend is especially frightening – not only for local retailers, but also for local governments. While events such as Small Business Saturday help promote brick-and-mortar sales, more needs to be done. Now is the time for Congress to close the online sales tax loophole.
Current legislation such as the Remote Transactions Parity Act (H.R. 2775) and the Marketplace Fairness Act (S. 698) are good for local retailers and help to create a level playing field. By allowing local governments to collect sales tax on internet purchases, cities will be better able to close budget gaps and use the funds to provide critical services to residents – at no additional cost to the federal government. NLC continues to advocate for these bills, and will fight for similar legislation in the next Congress. Here are four reasons why:
- Opinion polls consistently show that local government is the most trusted level of government. E-Fairness legislation gives cities and towns the ability to better serve their residents and businesses without impacting the federal deficit.
- Cities are where America comes together to live and work; they are the primary drivers of economic development and growth. Main street retailers shouldn’t be subjected to a legislative loophole that can cause the loss of revenue and jobs, and cities shouldn’t be at a financial disadvantage when it comes to collecting the taxes owed to them.
- A century ago, just 14 percent of Americans lived in cities; today, 80 percent do. Cities manage the physical and civic infrastructure on which America depends. Local governments own and operate 78 percent of the nation’s road miles, 43 percent of the nation’s federal-aid highway miles, and 50 percent of the nation’s bridge inventory. Additional financial resources would allow cities to build new infrastructure and improve existing infrastructure.
- The decision to levy a sales tax should be decided at local level, with no interference from the federal government. Cities need a partnership with the federal government – not a mandate that preempts their ability to collect taxes and creates an undue financial burden.
Our goal in advocating for e-Fairness legislation is simple: give cities the tools they need to thrive in the economy of the future and empower city leaders with the autonomy they need to run local government more efficiently.
About the author: Brett Bolton is the principal associate for Federal Advocacy (Finance, Administration and Intergovernmental Affairs) at NLC.