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Opinion

Opinion

Tax challenge

Online shopping is having a significant impact on retail businesses — and local sales tax collections.

April 19, 2011

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Sometimes numbers can serve as a crystal ball. Here are two numbers that ought to worry Lawrence leaders responsible for providing basic services to the community:

• More than 46 percent of the city’s general fund revenues in 2011 are projected to come from sales tax collections. Sales taxes have become the largest single revenue source — more than twice as large as property taxes — for the city fund that pays for basic services such as police, fire, street maintenance and many other core services.

• In 2010, the amount of money spent buying products online increased by 14.8 percent. According to the U.S. Commerce Department, online sales grew at a rate more than two times faster than total retail spending. Simply put, the retail industry is becoming more about online shopping each and every day.

If the city of Lawrence were a stock, these numbers alone would be enough to put its price on a downward trajectory. These numbers paint a bleak future for Lawrence’s ability to provide services to its residents.

The reason, of course, is that sales taxes aren’t collected on many online purchases. That fact has created a structural problem for Lawrence and other governments across the country. The city’s largest revenue source is now being eroded because federal leaders are feckless in standing up to online retailers and shoppers.

It is clear that this flawed system is having an impact in Lawrence. Just last week, the longtime and respected downtown merchant The Bay Leaf announced it will close. Certainly many factors have led to this loss, but it would be hard to argue with the store’s owner that competition from online retailers has played a role.

There’s much that can be done to level the playing field. The most comprehensive solution, however, would be for Congress to pass a law requiring online retailers to collect a use tax on sales made in the 45 states and approximately 7,500 different local jurisdictions that collect a sales tax. In today’s high-tech world, that is not as difficult as it sounds. In fact, many brick-and-mortar retailers that make deliveries already are required to keep track of a myriad of different sales tax rates.

Lawrence and other local governments have been lobbying for this change for years. But their lobbying efforts won’t be enough. Before Congress will make this change, the issue probably must be reframed.

It must be made clear to politicians and the public that this is not a new tax. State governments already are in agreement that a use tax should be collected on purchases made online. As a Kansas consumer, you are responsible for keeping track of your untaxed online purchases and claiming them on your state tax return. But state leaders do little to advertise that responsibility, and their ability to efficiently enforce the provision is even more limited.

But the point is, politicians don’t have to pass a new tax to correct this problem. They just need to improve the collection mechanism. Online retailers should be responsible for collecting the consumer’s tax, just as brick-and-mortar retailers are responsible for collecting sales taxes.

Absent federal leaders stepping up, local officials should start talking about how they plan to replace the tax revenue that will be lost to online sales. We can try to make Lawrence more attractive to new and larger retail businesses, but additional action may be necessary. Do we want to enact a local income tax? Do we want to raise local property taxes? Do we want to start converting free roads into toll roads? Perhaps such discussion will wake some people up.

Of course, we can and should continue to look for ways to make government operate more efficiently. But we shouldn’t just blindly assume that we’ll figure out how to make up for lost revenue without cutting core services that residents clearly expect.

Comments

Centerville 2 years, 12 months ago

Sigmund is correct and bears repeating: "Each dollar local residents pay in sales taxes is one less dollar available to spend with other local merchants." And that lowering tax rates would benefit taxpayers and businesses. [which has been proven over and over and over again]

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ghamon 3 years ago

Hey dude:

Every thought about calling the local vendor and having them ship it to you direct??? If they did not have it in stock. I am sure they would have been happy to do so. As for the sales tax, don't you live in Lawrence, drive on their streets, expect someone to put out your house if it is on fire, call the police if you need one, what is the beef about the tax thing I ask.

Just me I guess.

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Sigmund 3 years ago

Prices are different from costs. The Bay Leaf "prices" are/were higher before taxes. Even if the prices were identical online purchasers often have to pay for shipping, so is the Bay Leaf going to be forced to charge comparable shipping to even out the playing field and make it "fair?" I think not.

The bottom line is this, taking more taxes from Lawrence residents (either online or face-to-face) hurts both consumers, because they have less money to spend locally, and local merchants, because local consumers have less money to spend locally. Overall this is a lose-lose situation for consumers and businesses with only the government benefiting from collecting more taxes! Which is not terribly surprising as the LJWorld consistently argues in favor of higher taxes at the expense of all its readers who have to pay the price.

Every dollar in additional taxes is one less dollar for private economy a simple fact of mathematics.

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Sigmund 3 years ago

"It is clear that this flawed system is having an impact in Lawrence. Just last week, the longtime and respected downtown merchant The Bay Leaf announced it will close. Certainly many factors have led to this loss, but it would be hard to argue with the store’s owner that competition from online retailers has played a role."

What isn't so clear is just how charging sales taxes for online purchases would have helped "The Bayleaf" or any other local merchants. Further, where is the concern for local residents who have to pay those taxes? Each dollar local residents pay in sales taxes is one less dollar available to spend with other local merchants.

In fact, if the LJWorld is so concerned about the negative impact of sales taxes on local merchants and residents they would advocate a lowering the local sales taxes which would benefit both groups. I will not be holding my breath.

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toe 3 years ago

Smaller government is a superior solution to larger taxation. I do not want most of what government is trying to force me to take.

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BeatriceV 3 years ago

Federal legislation to address this issue is expected to be introduced by Illinois Senator Dick Durbin shortly. It would enable states that participate in the Streamlined Sales and Use Tax Agreement (24 states so far, including Kansas) to require out-of-state retailers to collect the tax that is due on purchases.
In the modern internet age, large online retailers easily manage millions of items for sale at a given moment. Even the smallest online retailer can instantly calculate shipping options to any address. It is no longer too difficult to keep track of a few thousand tax jurisdictions. As part of the Streamlined agreement, states have certified technology providers who can provide this service, including a free service option.
It is better that Congress address this issue. Otherwise states will attempt on their own to collect these much-needed revenues, which will result in a patchwork of laws, reporting and enforcement efforts.

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d_prowess 3 years ago

It would be interesting to see some stories on what types of items people buy most often online. I never buy clothes online because I like to try them on and see how they feel, but I know a lot of folks that do. What are the other top selling categories of goods online? And this is not a request for an "On the Street" story so we get 4 individual opinions plus those of the story commentators. I am talking actual sales data being tracked from some type of national organization. It would be interesting to see which local businesses are really competing the most with online sales.

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malehrman 3 years ago

I noticed the Bay Leaf has an online store.

http://www.thebayleaf.com/index.cfm/fuseaction/store.main/index.htm

Maybe online shopping is not the problem for downtown retailers?

Offering the exact same products you can get anywhere else is the problem. Downtown Lawrence should offer a unique shopping and entertainment experience. What can you get downtown right now that you can't get anywhere else?

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imastinker 3 years ago

I fail to understand why internet sales are being considered a problem. Instead of looking at it as putting more places out of business, consider the convenience of having stuff delivered to your door. I frequently order things off the internet that are more expensive than I can get elsewhere. Why? Because I can order it without driving somewhere and spending gas money to run into town.

I just bought an ashtray door for the dash of my truck. It cost $20 shipped. I probably could have gotten it for less at a local salvage yard, but would have spent an hour and $10 worth of gas to do it.

Oh, I didn't pay sales tax either.

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OonlyBonly 3 years ago

Something else that affects the local sales tax income - availability of product! "Sorry, we don't stock those but I can have them.........."

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OonlyBonly 3 years ago

Something else that affects the local sales tax income - availability of product! "Sorry, we don't stock those but I can have them.........."

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d_prowess 3 years ago

I guess we should thank the owner of the Bay Leaf for raising some awareness of the issue of internet sales and its impact on local taxes, but I struggle to see it as being much of a factor in her particular case. She said that the economy turned right when she moved into a space twice the size. The things sold there were hardly necessities and so an increase in rent and an economic downturn in sales seems like the perfect storm for a troubled business. Not to mention that there are many, many other stores that you can get kitchen-type stuff (Target, Sears, Wal-mart, Kohl's, grocery stores, Weavers...) so even with a good economy, I wonder if doubling in size would have worked for them. I don't mean to rail on the Bay Leaf, but I just don't like the paper continuing to site her comment as a fact/evidence of the impact of online sales without much to back it up.

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DeaconBlue 3 years ago

The government wants your revenue. They make revenue off of your revenue. They do not know how to earn revenue. They do know how to take your revenue and call it their revenue.

They will say and do anything to take your revenue.

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Liberty_One 3 years ago

Wow, this is such pure evil I'm aghast. How can anyone in good conscience write something like this?

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gr 3 years ago

"It is clear that this flawed system is having an impact in Lawrence. "

Sounds like the solution is to raise Lawrence's sales taxes even higher than they are!

They added a use tax on the tax forms. Why is there even a discussion of making more laws?

A perfect solution would be to collect taxes at the rate and for the area where you sell it. What a novel idea, huh? It would be just part of your sales. That way, if there's an area which doesn't want business (not mentioning any here), then they can raise taxes really high and make the business go elsewhere. Likewise, if an area is friendly to businesses, they can lower the taxes. With this convoluted and various rate taxation, there is no way to reward or punish businesses.

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Paul R Getto 3 years ago

"Absent federal leaders stepping up, local officials should start talking about how they plan to replace the tax revenue that will be lost to online sales. We can try to make Lawrence more attractive to new and larger retail businesses, but additional action may be necessary. Do we want to enact a local income tax? Do we want to raise local property taxes? Do we want to start converting free roads into toll roads? Perhaps such discussion will wake some people up. " ==== A bit hyperbolic, but some good points here. Avoiding taxation on the Internet is cutting into revenues. It would be nice if the feds would deal with this, but I doubt they have the nerve.

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lucaszane 3 years ago

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