The bedrock of American enterprise is a level playing field and a free market. Businesses, playing by the same rules, compete for customers in an open marketplace, free from preferential treatment from the government. When governments use tax dollars to prop up one sector over another, the market is no longer free, and the playing field no longer level. There is no clearer example than the application of Virginia sales tax law where two identical sales are treated differently based on which retailer is making the sale.
Thankfully, the Marketplace Fairness Act, currently before Congress, addresses this long-standing government subsidy of online shopping. Internet retailers should play by the same rules as brick and mortar stores do. After all, a sale is a sale, regardless of whether it occurs online or on Broad Street.
All sales are taxed in Virginia – even Internet sales. But there are two sets of rules – one for local business owners and one for Internet retailers. Local business owners are required by law to increase the price of their products by 5 percent, and then remit sales tax to the commonwealth. Internet retailers, exploiting a Supreme Court loophole, are not required to collect sales tax. But sales tax is still owed on Internet purchases and the responsibility falls to the customers to self-report their owed taxes back to the state when filing year-end tax returns: an honor-system method. If, as a policy, politicians want to eliminate the sales tax entirely, every business owner I know would support that. But if we’re going to have a sales tax, it should be fairly applied — and collected.
Few people actually pay the tax they lawfully owe for online purchases, which leads to another problem. Local governments across the Greater Richmond area, and Virginia as a whole, are strapped for cash. Henrico and Chesterfield counties are asking voters to create a new, county-wide tax on meals and prepared foods. Our elected leaders suggest new taxes on everyone who buys prepared foods — while letting a select group of online retailers avoid collecting and remitting the sales tax their customers rightfully owe.
Opponents of The Marketplace Fairness Act make a red herring argument that small businesses will be burdened by complying with nearly 10,000 taxing jurisdictions nationwide. The fact is that under the proposed law, retailers would only file one return per state. It would be up to the state, not the retailer, to deal with multijurisdictional tax rates. The states are also required to provide, free of charge, software that calculates the destination sales tax. And none of this applies to retailers with less than $1 million in online – not total – revenues. Even eBay, an opponent of the Marketplace Fairness Act, supplies vendors with tax collection software that already performs these calculations. It is as simple as entering your ZIP code, the same way you find your local weather.
Consider this real-life, recent example at a local Richmond retailer: A customer came into the store and spent an hour with a professional store associate choosing barstools. The brick and mortar store naturally had the items in stock for the customer to sit on, to see how it felt, to feel the fabric and consider optional fabrics and metals. The sales associate provided the expertise to help the customer make a decision. At the time to write the sale, the customer pulled out their cell phone and conducted a search with all of the information the sales associate just provided. They found the items from an online/out of state provider for less. That isn’t difficult. If you don’t have to pay for a showroom or utilities or a professional sales force it is easy to undercut a brick and mortar store. Pursuant to store policy, the local store matched the online price, but there was an additional catch. The online “store” did not charge sales tax. The customer expected the local retailer to match the bottom-line price, which meant an extra discount of 5 percent, wiping out any bottom-line profit to the local retail store, and the final price still incorporated Virginia’s sales tax.
Brick and mortar retailers are the lifeblood of communities across Virginia. We provide local jobs, pay local taxes and support local charities. Yet, the status quo penalizes local businesses with each new online storefront that opens.
Tax policy should be applied fairly and treat all retailers the same. Government should not pick and choose who must collect sales tax; to do so amounts to government picking winners and losers by manipulating prices. The Marketplace Fairness Act permits the free market to work and lets businesses compete on a level playing field. It’s time to end the government-subsidized carve-out of online retailers that is hurting local businesses that create jobs here in Virginia.
Nancy Thomas is president of the Retail Merchants Association in Richmond. Contact her at