Online retailers may have to charge sales taxes to consumers if Congress passes legislation Sen. Dick Durbin (D-Ill.) proposed last month.
The federal Main Street Fairness Act would require online sellers to charge sales taxes regardless of whether or not they have a physical presence in the state, according to a news release by Durbin.
“Why should out-of-state companies that sell their products online have an unfair advantage over Main Street bricks-and-mortar businesses here in Springfield?” Durbin said in the release.
“The Main Street Fairness Act doesn’t ask anyone to pay a single penny more in taxes. Instead, it would help governors and mayors collect taxes that are already owed.”
This March, the Illinois Senate passed an act, also called the Main Street Fairness Act, requiring the collection of sales taxes for certain online purchases. Supreme Court rulings in the late 20th century established that companies do not have to charge sales taxes if they do not have a physical presence in the state.
The proposed act would not benefit Main Street businesses, said Carl Szabo, policy counsel to Net Choice, a coalition of online trade associations, e-commerce merchants and online consumers whose members include eBay, Expedia and Yahoo.
“The Internet creates the ultimate fairness and it’s actually a huge benefit for Main Street, not a burden, not a competitor,” Szabo said. “Back in the days before the Internet, the only people those Main Street sellers could sell to were people who walked past their store, or people who went into their store. Now, with the Internet, anyone in the world is a potential client of theirs. If a small seller is required to collect these taxes, that Main Street seller would have to know the tax laws of all 50 states, and it creates this huge burden on these small Main Street sellers, the very ones that Sen. Durbin is talking about.”
Szabo also pointed out consumers shop online not to avoid taxes but to enjoy the convenience. Weinberg junior Walter Furness, who said he buys books and clothing at sites such as Amazon, agreed the ease of online shopping and the better deals are what attract him.
“(Charging sales tax) may make me think a little more closely about what I’m purchasing as I take that into account, but I don’t know if it would change my buying habits that much because of the convenience,” Furness said.
However, research at the Massachusetts Institute of Technology’s Sloan School of Management performed by MIT and NU faculty found an obligation to pay sales taxes decreases online orders but not catalog orders. Online sales are more sensitive to the collection of taxes because it is easier to compare orders, said MIT doctoral candidate Nathan Fong, who was part of the research.
“In the online channel where it’s very easy to search one store and search another pretty quickly, customers are going to be more sensitive to sales taxes because it’s very easy to fill up your cart (and) compare the total inclusive of shipping and sales tax and everything else for one store versus a competing store with similar products,” Fong said. “If you’re shopping offline, you just can’t load up a cart at two stores even if they’re across the street, bring them to the checkout counter and try to compare them directly to see which purchase you’d rather make.”
Fong also echoed Szabo’s concerns that the legislation would harm rather than benefit small business owners since large retailers are more likely to have the resources to understand and comply with the tax laws of all the states. But Eric Anderson, a marketing professor at the Kellogg School of Management and another member of the research team, said very few people pay the legally required sales taxes for online purchases.
“Now the playing field is a little bit tilted in the sense that whether or not sales tax is collected depends on whether or not the company is required to collect sales tax or chooses to collect sales tax in that state,” Anderson said. “Technically what’s supposed to happen is that you’re supposed to collect your receipts for everything that you bought online that you didn’t pay sales tax for and you’re supposed to include that in your tax return every year, but it’s very hard to enforce and very hard for consumers to even keep track of.”
