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.