Local businesses support e-fairness legislation
by Patrick McCreless
Apr 22, 2013 | 4295 views |  0 comments | 7 7 recommendations | email to a friend | print
Dustin Benitez, general manager of the Midtown Outlet furniture store in Anniston, asks only for equal treatment with competitors in the marketplace.

But when out-of-state Internet retail businesses can sell furniture to local residents without having to charge sales taxes, reaching equality is difficult.

"Right now, we charge a 10 percent tax on a product, say a recliner, that is $399 but a consumer can get the same product online for just $399, so they just saved 10 percent," Benitez said.

The U.S. Senate on Monday voted to take up for debate and amendment the Marketplace Fairness Act, a bill that would close a loophole in federal law, allowing states to collect sales taxes on Internet purchases, regardless of where the retailer is located. If the bill becomes law, it would place local and out-of-state retailers on equal competitive footing while providing millions of dollars in additional revenue to the state and area governments along with jobs, business experts and economists say.

However, critics of the bill say it will place an unfair burden on small online businesses, reducing their ability to compete.

The sales-tax loophole is based on a 1992 Supreme Court decision that Internet retailers do not have to charge local sales taxes in a state if they do not have a physical presence there.

Nancy King Dennis, spokeswoman for the Alabama Retail Association, said her organization supports the legislation.

"We want to level the playing field," Dennis said regarding competition among local and out-of-state retailers.

Unable to compete with Internet retailers in terms of price, Midtown Outlet, which has been in business for 28 years, instead tries to push its high level of service to draw in customers, Benitez said.

"When somebody comes in here to get furniture, we like to say how long we've been in business and that if they have a problem with a piece of furniture, we are there to help them unlike online, where they'd have to deal with shipping it back," Benitez said.

Dennis said the loophole hurts not just local businesses, but also state and local governments.

"The state is losing a lot of tax and local governments are losing a lot of tax," Dennis said. "We want everybody to collect that tax and bring it back to local governments."

Phil Bond, executive director of We R Here, a Washington D.C.-based lobbying group that represents about 10,000 small online retailers, said his organization is against the legislation.

"We don't think it's wise for state tax collectors to be tax collecting from businesses in other states when they don't have a presence in that state," Bond said.

Bond said the bill is unfair since local retailers have their own advantages, such as a close location that allows customers to obtain products immediately instead of needing to wait for them in the mail. Bond said local retailers also benefit from customers who visit from outside their city or state.

"But a brick-and-mortar store does not have to ask a buyer where they are from and then assess tax based on that," Bond said.

Bond also said that unlike the large online retailers such as Amazon.com, small Internet businesses cannot usually afford to be the low-cost provider.

"What we've advocated is a healthy exemption for small businesses, but that has totally been ignored so far," Bond said.

According to a financial study the University of Alabama at Birmingham school of business published last year, in 2011 Alabama lost $165 million in sales taxes due to the loophole. Based on projected growth in the state's gross domestic product, the study projects those tax losses will increase in the coming years — from approximately $172 million this year to $186 million in 2016.

Robert Robicheaux, author of the study and chairman of the department of marketing, industrial distribution and economics at UAB, said some Internet sales in the state are exceeding his projections.

"In the fourth quarter of 2012, the estimated sales online exceeded the projections I had made," Robicheaux said.

Danny McCullars, financial director for Anniston, said closing the loophole would likely benefit his city in terms of revenue. Though the city collected $8.9 million in tax revenue during the first quarter of 2013 — a 24 percent increase from the almost $7.2 million collected in 2012 during the same timeframe — the increase was due to Anniston's passage of a 1-cent sales tax last year, McCullars said.

"It is following our projections closely," McCullars said of the tax revenue. "We did not build any economic uptick into our estimates."

McCullars said it was difficult to speculate on how much more tax revenue the city might receive if it can start charging sales taxes on Internet purchases.

"Judging by growth of Internet markets, the amount could be helpful," he said. "However, the benefit to small business with a physical presence in any particular locale could be substantial just because of fairness."

Robicheaux said his concern about the loophole is that it hurts the job market in the state.

"The loss is not just sales tax revenue," he said. "More important is the loss of jobs due to the many sales by Internet retail."

With fewer sales due to competition from the Internet, local retailers are having to either lay off or not expand their workforces, Robicheaux said.

However, supporting local businesses is about more than even stimulating the job market, Robicheaux said.

"Local stores are invested in the community," he said. "Online retailers don't make contributions to the local little league team or to schools."

Robicheaux noted however, that even if the bill becomes law, some Internet retailers will likely just lower their prices to maintain their competitive edge. Because Internet businesses do not have to maintain brick and mortar stores, they have far lower operating expenses and can better absorb price cuts than traditional retailers, Robicheaux said.

Regardless, any help in creating more fairness in the marketplace is appreciated by Patrick Wigley, owner of Wigs Wheels in Anniston. Wigley said he constantly faces competition with online retailers and does not have the money or manpower to set up an online service for his business.

"When the tax laws were written, the Internet didn't exist," Wigley said. "I think everyone should pay their taxes and be on an equal footing."

Staff writer Patrick McCreless: 256-235-3561. On Twitter @PMcCreless_Star.

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