Online retailers continue to exploit an outdated legal loophole to forgo collecting and remitting state and local sales taxes. This puts local businesses like our members at a distinct competitive disadvantage in the marketplace, robbing local communities of economic growth, jobs, and civic engagement.
Imagine you are a consumer: you are looking to buy a new TV, and you do some research (both online and in-store). What you’ll see is that the same TVs online seem less expensive than those in the store—this is because sales tax is added when you purchase from a local retailer, but the same does not hold true for all online retailers. Consumers, understandably, are more and more often going for what they believe to be cheaper prices for goods, especially big-ticket items like TVs and other appliances.
This situation is stifling local business growth and threatening small businesses nationwide. While public opinion continues to move in favor of leveling the playing field vis-à-vis sales tax collection, some in Congress continue to fight a rearguard battle against sound policy based on simple fairness, good economics, and common decency.
Among the various roadblocks thrown in the way of tax fairness by those who oppose it is the so-called “origin-based sourcing” alternative for revenue collection. Origin sourcing would require online shoppers to pay taxes to the state and locality where the product in question is housed (as opposed to where they are physically making the purchase)—effectively making us all taxpayers for each of the 45 states that have sales taxes on the books.
This would, of course, make a mockery of the concept of “no taxation without representation”—buyers would have no representation in the government to whom they are paying sales tax. This is another profoundly un-conservative stance. Do Virginians really want to pay for schools in California, police in New York, and garbage collection in Washington? This would essentially mean tax increases for Virginians as we would be required to pay other states’ considerably higher sales taxes for items purchased online.
Furthermore, origin sourcing would create de-facto tax shelters in the five states that currently do not levy sales taxes, with online retailers setting up shop in such states to maintain their competitive advantage. In short, it would not only do nothing to close the online sales tax loophole, but it would actually create an entire new set of loopholes for online retail giants to exploit.
Thankfully, on this issue Congress is showing good sense: a recent House Judiciary Committee hearing on the tax fairness topic showed that most committee members believe origin sourcing is a bad idea. This is important as the Judiciary Committee—chaired by Virginia’s own Representative Bob Goodlatte (R-VA-06)—is currently considering legislation to level the sales tax playing field. Chairman Goodlatte should quickly and decisively put a stop to the origin sourcing conversation once and for all, and move to finalize and pass a tax fairness bill.
E-fairness legislation is a top priority for Virginia’s businesses—and its passage should be a priority for our House of Representatives delegation, as well.