Online retail sales are growing. Companies from Connecticut can sell all over the country and retailers in other states can sell in Connecticut without the cost of a storefront or a sales force. It is a very profitable marketplace offering choice and convenience for consumers.
But there's a dirty little secret about most out-of-state online retailers. They don't have to compete fairly. Walk into your local bookstore, buy 10 books for $20 each and pay $213. Buy from an out-of-state retailer online and it's just $200. So why does the out-of-state online business get to offer a discount?
Well, it does not. The phantom discount is really just the failure to collect and remit sales taxes in Connecticut. The tax due does not go away. It becomes a tax on the purchase in Connecticut — a tax to be paid by the consumer.
Due to the confused state of federal law under the Commerce Clause, it's unclear whether all online retailers have to collect and remit taxes for sales in other states just like retail businesses do within the state. So most do not. Multiply that by millions of sales. It is easy to see why Gov. Dannel P. Malloy, the Connecticut Retail Merchants Association and our state's entire congressional delegation support passage of the Marketplace Fairness Act. After years of debate, this legislation was voted out of the U.S. Senate with overwhelming bipartisan support but is now stalled by the special interests in the House. The legislation would create a level playing field for all retailers by clarifying states' authority to require that sales taxes be collected by online sellers.
Without this federal legislation, out-of-state online sellers, who don't charge for our sales tax, are effectively offering a $150 million annual discount to Connecticut buyers while in-state retailers are put at a competitive disadvantage. It's also an estimated $150 million tax dodge made up in other taxes paid by the rest of us.
The biggest online retailer, Amazon.com, supports the Marketplace Fairness Act. Amazon has also agreed to collect sales tax in Connecticut beginning in November. But other big online national sellers are spending lots of money in Washington and in states like ours to stop the Marketplace Fairness Act. They won't tell you it's all about their profits and their unfair advantage. Instead, they are busy scaring small online retail businesses into doing the lobbying for them.
Figuring out sales taxes in other states that are not as simple as Connecticut can be a challenge. Smaller retailers selling online to out-of-state consumers have legitimate concerns. That's exactly why the pending federal legislation fully addresses those concerns:
• States must affirmatively enact legislation, with all the usual opportunities for wide open debate, before acting under the federal legislation and then, in states like Connecticut, provide six months lead time for implementation.
• Only online retailers with more than $1 million in annual sales need comply.
• States are required to provide and keep up-to-date free software (compatible with shopping cart and basic bookkeeping programs) so online retailers can manage tax collection, filing and payment for every state — with nothing for either the consumer or the retailer to figure out.
• States must certify a choice of one or more software providers that offer online retailers state-by-state tax calculations (including states that, unlike Connecticut, have variable county or local sales taxes) as well as collection and remittance on behalf of the retailers.
• States are required to provide a single return, single audit and relief from liability for errors when sellers use certified software providers, while states are also working together to provide a multi-state single audit process.
• All the usual exclusions and exemptions, including sales for resale, will apply state by state.
Let's remember that these businesses and sales are, by definition, already online. It is not as if this is an unsophisticated marketplace. Taxes should not care what shape, size or means of doing business entrepreneurs come in. Going online isn't an excuse for companies going rogue.
Bottom line? A level playing field is fair to retailers, fair to consumers, fair to taxpayers and long overdue.
Tim Phelan is president of the Connecticut Retail Merchants Association. Kevin Sullivan is Connecticut's commissioner of revenue services.