Though Amazon finally agreed to begin collecting Tennessee's sales taxes in 2014, the company long avoided and aggressively contested that responsibility. So the notices that Amazon has begun sending its Volunteer state customers to remind them of their legal duty to send the sales taxes they owe to the state treasurer will likely come as a surprise to many. The company's interim step towards a fair tax policy may be wasted motion in too many instances -- many purchasers just won't pay a tax that isn't collected at the point of purchase -- but at least it points in the right direction.
Amazon, eBay, Overstock and other online retailers should always have been required to collect state sales taxes, just as their bricks-and-mortar competitors do. That they escaped that responsibility as they grew into marketplace giants is an anomaly. It was wrongly perpetuated, however, due to a myopic U.S. Supreme Court ruling in 1992 that said tax-collection duties only applied if online companies had a physical presence in their customers' states. Since most didn't then, and still don't, their sales surged on that unfair cost advantage. It can't be ended soon enough.
The tax-collection disparity is grossly unfair and harmful not just to brick-and-mortar retailers, but also to the communities which depend on local retailers' physical presence for jobs and state and local commercial tax revenue. Roughly 68 cents of every consumer dollar spent in local retail stores stays in the community and gets cycled through many local hands.
Distant online retailers, by contrast, contribute little if anything to these critical economic factors. Indeed, online purchases generally only send consumer dollars out of their customers' communities. The harm that does is counted in lost local jobs, reductions in local economic activity, shuttered stores, and declining state and local budgets.
State and local governments and consumers have at last begun to act to stanch the economic loss. Their advocates have built spreading support in Congress for enactment of the proposed Marketplace Fairness Act, which would authorize states to require online vendors to collect state and local sales taxes on purchases in their jurisdictions.
Such a national policy would help level the economic playing field for local retailers, and help state and local governments recoup vital lost sales tax revenue. Though the act, co-sponsored by Sen. Lamar Alexander, got stalled in election year politics in 2012, it is scheduled to be reintroduced in the new Congress.
In the interim, state governments have been persuading Amazon and other large online stores to agree to collect sales taxes. Eight states -- California, Texas, New York, Pennsylvania, Kentucky, Kansas, North Dakota and Washington -- already require Amazon to collect online sales taxes. Arizona, Virginia, New Jersey and Massachusetts will begin doing so this year; Tennessee, Indiana and Nevada will begin next year, and South Carolina will start in 2016. Georgia, Alabama and other states are sure to see the results, and begin promoting tax fairness for their own state and local businesses.
Consumers here, and elsewhere, would do their community a service to begin paying the state's use tax -- the equivalent of the sales tax -- on purchases from out-of-state vendors and online outlets. The problem is that too few citizens are aware of their states' decades-old use tax. And many states, including Tennessee, have not made a serious effort to enforce use-tax collections.
Amazon apparently doesn't intend to aid that cause here. Though it's sending out reminders to its customers that they owe the state use tax, the company is not sending the state a list of its customers and the value of their purchases. Without that vital information, Tennessee officials are not likely to be able to collect those outstanding sales taxes.
Tennesseans could help boost the viability of their local retailers even more by embracing the independent book store campaign theme: If you saw it here, buy it here, and help us stay here. That would curb "showcasing:" the practice of shoppers who want to see, touch and feel a product before they buy it, so they go to brick-and-mortar stores to see the product, and then order it online to save the sales tax.
That's an abuse of retailers and the jobs, convenience and economic vitality they provide. And it's certainly not worth the false savings shoppers think they get.