Today, there is a loophole in state law that is being exploited which hurts small businesses and creates a competitive disadvantage in the marketplace. Modern commerce has increasingly involved online purchasing; however this current tax loophole has given out-of-state online only retailers an unfair competitive advantage over retailers in our community. As a result, brick-and-mortar small businesses that employ our family members, participate in our communities and are critical to our economy’s recovery are operating at a loss and jobs are at risk.
This is an issue of basic fairness. California businesses are being priced out of the marketplace because they are following the law and collecting the sales tax. All the while, some online-only retail giants are refusing to collect the sales tax by using a loophole whereby they pass on the liability to track and remit the sales tax to their consumers, many of whom have no idea the compliance burden falls on them.
This problem stems from a Supreme Court ruling issued years before Internet commerce was prevalent. The result has meant that consumers can buy online the same products that local small businesses sell, but while California businesses are required to collect sales tax, out-of-state online-only retailers just use the state’s outdated system to get around collecting the sales tax.
Simply stated, this is no way to do business in a 21st Century economy. California needs to make sure to maintain policies that keep pace with the changes that are occurring in modern commerce and its impact on local business. The current system is both deeply unfair and terribly antiquated and it needs to be fixed.
Fortunately, our state has an opportunity to close the loophole, modernize the system and ensure small businesses are able to compete.
Our elected representatives can support legislation that will require out-of-state online-only retailers comply with the same requirements to collect sales tax that California businesses must follow. This will ensure the fair and equitable collection of sales taxes by every business and in the process, provide a critical infusion of revenue for our state and local communities that are struggling to close deficits without raising taxes.
In fact, it is estimated in a recent study by the University of Tennessee that over $3.5 billion in uncollected state and local revenues in 2011/12 will result from this loophole that advantages these out-of-state businesses.
Closing this loophole will level the playing field and California’s small businesses that operate online stand to gain. The additional revenue will also be achieved by enforcing an existing tax equally on all businesses rather than by raising additional taxes, and ensures that local businesses are on a fair playing field with out-of-state online only retailers.
It is time to ensure our businesses are protected from unfair tax policies and right now our elected representatives have the opportunity to support fair tax laws, support our state’s small businesses, and our local economies.
Everyone will benefit by operating under the same rules. Common sense dictates that a sale, is a sale, is a sale irrespective where it takes place.
The alternative is not the system that we have today where individual taxpayers are exposed and small businesses negatively impacted. The correct solution is for out-of-state online-only retailers to comply with the same requirements that California businesses follow.
Only by applying honesty and common-sense to this process can we ensure small businesses – both those that operate online and those that work on Main Street – are able to compete by the same set of rules as out-of-state online-only businesses who today have an unfair advantage. Making certain basic fairness is instituted is critical to the success of our economy as small businesses serve as our top job creators and they will lead the way in our recovery.