EDITORIAL: Online retailers should pay sales tax

IBJ Staff
December 4, 2010
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IBJ Editorial

Competition has never been more fierce between brick-and-mortar stores and online retailers. That’s great for consumers, who ultimately benefit, especially the increasing numbers who use nifty smartphone apps to sniff out the best deals.

We have little patience for traditional retailers wishing for their halcyon days, when shopping malls had a near-monopoly on the holiday shopping market.

But there’s one area where we fully sympathize: Retailers and shopping center owners are right in crusading for a level playing field in taxation. It isn’t fair that most online retailers don’t charge sales taxes, while traditional retailers in Indiana must tack on 7 percent.

David Simon, CEO of Simon Property Group Inc., summed it up well at his Economic Club of Indiana speech this fall: “[The] Internet has a distinct advantage, which in my opinion is unfair,” Simon said.

“And hopefully we’re looking for fairness in our tax system. If you sell it in the physical world versus the virtual world, it ought to be the same. … We need to level the playing field tax-wise.”

Online retailers that forgo charging sales tax usually have the law on their side. The U.S. Supreme Court ruled in 1992 that retailers need not collect sales tax in states where they do not have a physical presence. 

But that ruling, crafted two years before Amazon.com even existed, is anachronistic.

Congress could change the law of the land, of course, and at first blush doing so seems like a no-brainer. Governments nationwide are starved for cash in the aftermath of the recession, and enforcing existing sales taxes on Internet transactions would raise nearly $20 billion annually, including hundreds of millions of dollars in Indiana.

But political realities come into play. So far, members of Congress have been reluctant to vote for what some construe as a tax increase, especially given that sales taxes are imposed by states and thus don’t flow into federal coffers. Opponents also argue that many online retailers are small businesses that barely get by, and that imposing the tax could send them over the edge.

Such critics far overstate the potential fallout. It’s time to put their hollow rhetoric aside. The status quo fails any common-sense test and creates bizarre dynamics.

Take Amazon, which operates a cavernous warehouse in Whitestown but doesn’t charge Hoosiers a sales tax, anyway.

The company’s official position is that it’s fair to bill for sales tax, but only if all online retailers do. Amazon contends it has the legal right not to collect the tax in Indiana, and other states where it has warehouses, because the online part of its business is a discrete legal entity.

Rep. Ed DeLaney, an Indianapolis Democrat, wants to end the nonsense. Spurred on by Simon’s remarks, he launched a push this fall to get the Indiana General Assembly to pass a resolution urging Congress to act.

DeLaney has little to gain politically from associating himself with the imposition of a tax. But he believes it’s the right thing to do. It’s time for lawmakers in Washington, D.C., to cast aside the political gamesmanship, acknowledge the validity of his position, and change the law.•


To comment on this editorial, write to ibjedit@ibj.com.



  • Tax collection
    Are you proposing that each company that sells to other states be held accountable for collecting sales tax for that state? If so then the burden comes on the online retailer; is it "fair" to force a retailer in Indianapolis to understand, enforce, collect sales tax for the state of california, or any of the other states? What about local taxes? Would it not be fair that if one county, or city has a higher tax on its local establishments, that the same tax is charged to a person who lives in that district but purchased the item out of state. Seriously why not, its only money and it is tax collecting by retailers who work for free.

    Caveat Emptor - I know when i purchase from local retailers that i can "ideally" speak to the owner/manager if i have a problem, i am also aware that over the net sometimes i get what i pay for.

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