by Steven Feldman
Ahaheim, Calif.—The World Floor Covering Association (WFCA) is urging floor covering retailers, distributors and manufacturers to throw their support behind the Marketplace Fairness Act. The proposed bipartisan legislation, also known as Senate Bill 1832, is designed to level the playing field between brick-and-mortar retailers and Internet or e-commerce sellers.
At issue is the fact online retailers are not required to collect sales tax. Rather, under current law, people who buy goods on-line are supposed to declare those purchases on their tax forms. However, few do. This has given online retailers a substantial tax advantage against brick-and-mortar retailers, one that allows them to present customers with lower bills at checkout, despite charging the same amount for that piece of carpet or hardwood floor.
Under federal law, states cannot compel a business to collect sales taxes unless the business has a “physical presence” within the state. In Quill Corp. v. North Dakota, the U.S. Supreme Court reasoned that existing sales tax collection systems were too complex to impose on businesses that did not have a physical presence in the state. It also established that Congress has the authority to allow states to force businesses without a physical presence to collect. The Marketplace Fairness Act, sponsored by Sens. Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.), would empower states to force online retailers to collect sales taxes.
Under one approach, states would sign an agreement altering their sales tax codes so they are all uniform. Then, they would be able to force online retailers to charge a sales tax. Any state that did not sign the agreement could still force the collection of taxes if they adopt minimum standards that simplify their collection process.
Supporters also note the bill is not creating a new tax, but merely closing a tax loophole created years ago.
Jim Walters, chairman of the WFCA, said this bill is of utmost importance to flooring retailers. “Consumers are still purchasing flooring by touch and feel, but because of a tax loophole, they are able to purchase flooring online and avoid paying sales tax. This puts traditional brick-and-mortar retailers at a disadvantage. Any Internet or e-commerce sale, as it relates to our industry, does not take place without that consumer using our showrooms. That is why all flooring retailers should be interested in this bill.”
The bill’s sponsors are trying to get it on the agenda before the Finance Committee breaks for summer recess. Originally called the Main Street Fairness Act, the bill became more attractive to Republicans when the revised version exempted small, online retailers who do less than $500,000 a year from collecting sales tax.
“The key word here is ‘fairness,’” Walters said. “As someone who owns a brick and mortar store, invests in a local showroom, employs people, gives back to the community and pays taxes—all the things that churn the local economy—it is unfair for the government to require us to collect sales tax on their behalf while Internet companies are allowed to assign that burden to the consumer.”
WFCA is urging people that have relationships with the various buying groups and manufacturers to get behind the bill and start writing letters. “We have a template that people can access online, edit it as they see fit, sign and send back to the WFCA office,” Walters said. “We believe this is more effective than sending a letter to the local congressman. Our lobbying firm is holding meetings on Capitol Hill in an attempt to gain support for the bill. They feel it will have more impact by walking in with a stack of letters rather than them coming in piece meal to local congressmen and state senators.”
Aside from helping traditional flooring stores compete with online retailers, the bill will generate revenue for the individual states, according to Maine Gov. Paul LePage (R). “Unfortunately, a damaging inequity exists in the retail marketplace be-cause some online retailers are not required to collect Maine sales tax, but Maine retailers are. Not only does this hurt Maine businesses, it hurts the state. If the handcuffs on these small retailers were removed, they could compete on equal terms. They would generate mores sales, pay more sales tax to the state treasury, hire more local employees and pump more money into local economies throughout Maine.”
LePage reiterated the bill would not raise taxes. “It simply provides for the collection of sales tax already due.”
The National Conference of State Legislatures estimates online sales will cost states $23 billion in tax revenue in 2012.