Gary Rabine: Main Street retailers unfairly hurt
In this long, slow economic recovery, economists are optimistic about the 2014 holiday shopping season. And Cyber Monday promises to lead the way: In 2013 alone, consumers spent $1.735 billion from their desktop computers the Monday after Thanksgiving, up 18 percent from 2013.
In fact, that was the heaviest online spending day in history. This year Cyber Monday could be much bigger.
But as this online shopping milestone approaches again, shoppers need to know many of the online-only retailers aren’t playing fair. When you click “checkout” on the Web this year, chances are you will be pushing your favorite Main Street retailer toward failure.
One of my businesses, Rabine Paving America, builds and maintains parking lots. We are one of the largest commercial paving companies in the country, with employees working in all 50 states.
We have built a lot of parking lots across three decades and we service many retail establishments, large and small. I’ve seen the cars that fill these lots, and the people who fill these stores. It’s troubling to know that most of these people have to pay more to buy goods on Main Street than they would if they bought the same goods online – simply because many online-only stores are not collecting due sales taxes.
It’s true in the paving industry as it is in the business world: we cannot succeed unless there’s a level playing field. A brick and mortar retailer must charge the sales tax when selling to customers within the state the store is located. But that customer could buy the same item from an online-only retailer for less – the Web-based store is not required to collect state sales tax from a customer who lives in a different state.
For example, if I buy a $1,000 sofa from an Illinois store near my home, I’ll pay $1,062.50 including the 6.25 percent Illinois sales tax.
But an Indiana online retailer can sell me the same sofa at the same price without Indiana or Illinois sales tax because I don’t live in Indiana and they’re not in Illinois. I can buy that same sofa free if sales tax for $1,000.
The Internet has developed into a place for savvy shoppers to exercise even more choice in the marketplace. Unfortunately, it is at the expense of that Illinois sofa store that likely served only as the window-shopping for a customer who ultimately chose to save money by ordering online.
The U.S. Senate moved last year to fix this by passing its version of the Marketplace Fairness Act. The bill closes the online-only sales tax loophole and requires businesses to collect and remit sales taxes from customers based on the state where that person lives. Small online businesses with less than $1 million in annual sales would be exempt.
Members of U.S. House need to understand that the Marketplace Fairness Act is not a new tax. Nor would it raise an existing tax. The law would only collect sales taxes that have always been due from online customers and never collected.
Collecting the sales taxes owed would add $16 billion over ten years to the coffers of my state of Illinois, and add more than 40,000 new jobs here.
This reform could actually bring much needed tax relief. If it passes, lawmakers in Ohio have promised to lower income taxes to offset the extra sales tax revenue coming in.
Illinois recently raised its income tax rate from three percent to five percent, and also increased the state’s corporate tax rate. Collecting sales taxes due from online purchases delivered into Illinois might push state policymakers to reconsider these recent tax hikes, just like Ohio.
Finally, this law would get the taxman off the backs of consumers. Right now, shoppers are required to pay taxes from online sales. But this is rarely done or enforced, leading to an estimated $13 billion loss in e-commerce revenue in 2012 alone. The MFA transitions the tax collecting responsibility to businesses, thus consumers can no longer be accused of evading taxes.
The House of Representatives needs to finish the job started by the Senate last year. Instead of kicking this can down the road, Speaker John Boehner and other House leaders should act in the last days of the 113th Congress and make our sales tax system fair again.
Gary Rabine is the founder and chief executive officer of Rabine Group in Illinois, one of the largest paving companies in the country, and a member of Job Creators Network, a national business advocacy organization.