It's time to finally end online tax advantage

While millions of courageous consumers donned elbow pads and confronted Black Friday crowds last week, more shoppers than ever decided Monday to work through Christmas lists the newfangled way – with swipes and clicks on their favorite electronic devices.

Cyber Monday 2011 was the best online shopping day in history, with online sales rising 22 percent to $1.3 billion this year. That’s good news for our sluggish national economy, but for brick-and-mortar businesses closer to home, it’s the season once again to rue revenue that might’ve been.

Last year, local businesses across the country lost billions in sales – and North Carolina lost $190 million in fiscal year tax revenue – because online retailers are not compelled to collect state taxes on purchases. That puts brick-and-mortar businesses at a 5- to 10-percent disadvantage when shoppers start comparing prices, says the Alliance for Main Street Fairness, a national collection of mom-and-pop retailers that’s been joined in their online outrage by retail giants such as Wal-Mart, Target and Best Buy.

On Thursday, four N.C. retailers from the group participated in a conference call with reporters to protest the advantage current laws give to online retailers like Amazon.com. The group’s complaint is this: States, including North Carolina, obligate consumers to pay state sales taxes on online purchases, but under a 1992 U.S. Supreme Court ruling, only merchants who have a physical presence in a state are required to collect those taxes. That means states are collecting mostly from consumers who add up all their uncollected online sales taxes and include them on their tax forms each April. You can guess how that’s working out.

Retailers say that physical presence in a state, called a “nexus,” should be redefined in the modern marketplace. Andrew Riddle, owner of Aging in Place in Hendersonville, explained why Thursday: When an Iinternet retailer sells brass bars for a shower to an N.C. consumer, he said, our roads are used to deliver those goods, and our landfills are used for the boxes that are thrown away. That constitutes a nexus, yet the online retailer doesn’t have to collect the sales taxes that Riddle would if he sold the same brass bars.

Now, after years of wrangling with online retailers, Congress is on the edge of a breakthrough, with bi-partisan bills in the U.S. House and Senate. The Senate bill even has the early, critical backing of Amazon.com. The bills would allow states to compel Internet retailers to collect taxes, but they would require those states to adopt streamlined and simplified rules that make it easier for online retailers to collect from different states.

The bills each would exempt smaller online retailers from collecting sales taxes. Companies with less than $500,000 in annual online sales get the waiver in the Senate bill. In the House version, which is co-sponsored by N.C. Rep. Renee Elmers, the threshold is $1 million in annual sales.

Those exemptions might elicit a rightful humbug from brick-and-mortar businesses, who receive no such break on collecting sales taxes. But the legislation, overall, is fair, and it would end years of an unlevel playing field. The bills haven’t progressed past the committee stage yet, so there’s no hope for passage this holiday season. But we urge Congress to provide prompt delivery on a new law.