Marilyn Thiele
Living in New Jersey, I have come to accept high taxes as the price we pay for the privilege of living in The Garden State. In the last week, however, a couple of events have reminded me that the tax I collect can be as burdensome as the taxes I pay.
A request from a customer who tries to shop locally whenever possible illustrates the disparity created by current law regarding sales tax collection. She was interested in purchasing multiple copies of several books for the local yoga studio where she is employed. She had already priced the books on Amazon and gave me a printout of their prices for these books. She said that if I could come somewhat close to those prices, they would prefer to buy from me. A little research proved what I already assumed: Amazon’s prices were barely higher than what my cost for those books would be. Even if I were willing to make only a small profit on this sale, there was another problem. I would have to charge the customer 7% more, in this case approximately $30. The state of New Jersey requires that I collect the sales tax. It does not require Amazon to do the same. For a small business such as the yoga studio (or a small book store), where every penny counts, a $30 savings trumps the desire to “shop local.”
Because of a 1992 Supreme Court decision, states cannot force retailers to collect sales tax unless the retailers have a physical presence in the state. Books purchased from chain bookstores which sell on-line but have stores in the state must collect New Jersey sales tax from New Jersey customers. This is true in most other states. However, if the seller has no ties to the state, it is not required to collect the tax. Instead, the purchaser is supposed to declare the items and pay a “use tax” on them when they file their state income tax return. I am sure that this is being done faithfully by all residents of New Jersey and other states.
Recently, Amazon expressed an interest in locating two distribution warehouses in New Jersey. This physical presence would require them to collect sales tax from their customers located in the state. Any retailer who thought this move would even things up a bit was soon put straight; Amazon requested a 22-month “sales tax amnesty” from the state. Their bargaining chip is the creation of an estimated 1500 jobs in a state with a high unemployment rate. Of course, some of us who are employed would like to keep our jobs. One news article reported that they were considering building in nearby Delaware, which does not have a sales tax. The most recent news I have is that a bill has been introduced in the state legislature to grant a 16-month exemption from collecting the tax, not just to Amazon but to other retailers willing to locate warehouses in the state.
There has been federal legislation introduced to give states authority to require on-line sellers to collect state sales taxes, as long as they streamline the collection process. Not surprisingly, despite heavy lobbying by associations of retail merchants, the bills are languishing in Congress. My understanding is that Amazon has actually supported this legislation; the delay seems to be caused more by the usual (non)workings of Washington than by strong opposition.
One objection to the legislation is the difficulties it would impose on small sellers. I have periodically considered selling books on-line, especially the more unusual used books I have acquired. Thus I can easily put myself in the shoes of a small on-line seller who would have to determine the sales tax rate in another state, collect the tax, and file a sales tax return in that state. First there would be the paperwork of registering in that state as an authorized collector of the tax. There are many who think this requirement would kill on-line commerce, or at least inhibit that delightful matching of geographically distant buyer and seller which it facilitates. I’m not sure what “streamline the process” means in the pending federal legislation, but I am convinced that it would not be long before software would be developed to handle the transactions. State governments should be willing to forgo some of the burdensome filing requirements; it is estimated that about $23 billion was lost to states last year because of untaxed on-line sales.
Although I have used books and Amazon as examples, the sales tax issue applies to all sorts of small retailers, from toy stores to gift shops to pet stores and Amazon is not the only large on-line retailer which benefits from the lower cost to the consumer of not paying sales tax. It may be that Main Street is dead because there is no way to compete with the buying power of huge on-line sellers and physical “big box” stores. I don’t agree with that view, but that is a topic for another day. My concern is not filling the state coffers but leveling the playing field. A store owner or manager can work with a customer on price; he cannot waive the sales tax. If requiring the collection of sales tax for on-line purchases may mean the death of on-line commerce, consider the alternative slow death of Main Street commerce. Which should it be? If we compete fairly, both can survive.
