published Saturday, November 12th, 2011

Tax equity for local businesses

After watching too long from the sidelines, a bipartisan group of senators, including Tennessee's Lamar Alexander and Bob Corker, have finally proposed a bill that would allow Tennessee and other states to collect sales taxes from online businesses.

Their proposal is a welcome and long-needed initiative. If enacted, it would finally overcome the outdated Supreme Court ruling that bars states from collecting sales taxes on e-commerce transactions unless online stores have a presence in their state. That would let states ensure tax fairness for local brick-and-mortar businesses, save many from unfair competition and bankruptcy, avoid the loss of local businesses, and generally level the playing field for retail stores. The bill cannot be passed too soon.

Alexander, a key sponsor, rightly sees the need for such legislation as "a states' rights issue."

"It gives the state of Tennessee the right to decide how to collect or not to collect its own sales tax. It ends the subsidy for some businesses over others. It closes a loopholes that's been growing for 20 years, and it permits the state to collect that avoided revenue," he said. He's right on all counts.

Some consumers apparently do not see the need for such tax equity, but most who oppose e-business sales taxes apparently have not considered the unfairness of the current tax gap to brick-and-mortar retailers, and the broad impact it is having in every state. Yet the absence of tax fairness for online sales unfairly puts brick-and-mortar retailers at a competitive disadvantage that is leading to the demise of many local businesses and losses to their communities' tax base.

Communities can't afford to let that dynamic continue. Local businesses not only contribute to local and state tax revenue and to local jobs; they, and their employees, also help pay the public costs of roads, infrastructure and schools. Losing brick-and-mortar retailers takes their tax and job contributions out the community and leaves the untaxed profits of online retailers in other states with unfair gains.

States cannot afford the losses that stem from such tax inequities. University of Tennessee economists estimate Tennessee will forfeit $410 million in missed sales tax revenue next year. That's huge.

With current software, online retailers can easily calculate, collect and remit state and local sales taxes on customers' purchases. Many do so already. And even Amazon, now the world's largest online retailer, agrees that tax fairness is important and should be done on a national basis.

Sens. Alexander, Corker and their co-sponsors would do well to push the proposed bill through Congress. Their bill improves on the long-stalled "streamlined sales tax bill" for e-commerce. It would treat states and local retailers more fairly, and it would clearly reinforce the strength and stability of local businesses, large and small.

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