Walk down any Main Street, and you’ll see storefronts of small businesses that fuel local economies. From quaint “mom & pop” shops to sleek and trendy boutiques, these businesses often provide a human element that helps define the character of our communities. But many of these small businesses, the source of nearly 70 percent of American jobs, face an uphill battle when competing with out-of-state Internet merchants benefitting from outdated tax policy.
In most states, including Nebraska, businesses collect sales taxes from patrons and remit them to their state to fund government services like education and road maintenance.
Online merchants, however, are not required to collect sales taxes from costumers in other states. As a result, local brick-and-mortar stores often lose out to faraway online vendors, who can offer the same product without charging a tax at the point of sale.
Customers still owe sales taxes on these goods and services under current law, but they are required to report these online purchases at yearend on their income tax return.
However, customers often forget about online purchases or simply neglect to self-report them when they submit their 1040s.
The impact on states can be tremendous. Estimates show Nebraska loses tens of millions of dollars in uncollected tax revenue each year, forcing the Unicameral and Governor to stretch less-than-expected resources to meet the state’s responsibilities.
And as local businesses lose out on potential sales, fewer “help wanted” signs are being placed in storefront windows at a time when many Americans are in search of work.
Earlier this week, the Senate voted on legislation that would level the playing field for brick-and-mortar stores and ensure online customers comply with current law.
The Marketplace Fairness Act simply provides states the option to work with online retailers in an easy, cost-effective way to collect the already-owed sales taxes on purchases made online, just like customers pay sales tax at local stores.
It authorizes states to require all online businesses with more than $1 million in domestic remote sales to collect and remit sales and use taxes to the state in which the purchaser resides.
States can choose to use the authority, which provides tax collection software to the online vendor at no additional cost, and requires states to meet a minimum tax simplification standard.
Despite claims to the contrary, this bill does not “tax the Internet.”
I am happy to report this week that this legislation has advanced to the House of Representatives. Local small businesses -- the engine of our economy -- deserve to be treated fairly by the tax code; this legislation would do just that, and would make it easier for consumers to avoid being penalized for owed, but unpaid, back taxes.
This bill ultimately grants flexibility to state governments and provides equal footing for local businesses that compete with major multinational online-only retailers.
It’s time we stand up for the folks who flip on the neon “open” light, sweep off the sidewalk each morning and welcome us in, helping to define the very fabric of our communities.