Internet sales taxing local businesses

PROVIDENCE, RI – More and more holiday shoppers are buying presents online. RIPR political analyst Scott MacKay tells us why this is bad for both mom and pop stores and state government.

Rhode Islanders of a certain age will remember when the only mention of a mouse and Christmas came during annual recitations of Clement Clarke Moore's classic poem, "'Twas the Night Before Christmas."

Wide-eyed children for more than a century have anticipated Christmas morning with the words "not a creature was stirring, not even a mouse."

Nowadays it seems the electronic mouse dominates Christmas giving. Thousands of Rhode Islanders and millions of Americans shop for gifts from the comfort of their homes or offices with the click of a computer mouse.

Let's say you are looking for a book. So you head off to one of our state's dwindling number of independent bookstores, such as the cozy Books on the Square shop in Providence's Wayland Square.

You can browse the shelves to your heart's extent. The booksellers are eager to help. You might even attend one of the store's author readings or children's story times.

But you don't buy the book at the store. Instead you head home, boot up the computer, click the mouse and make your purchase online.

This is smart shopping for because you don't have to pay the state sales tax if you buy on the Internet. Had you made the purchase at Books on the Square, you would have to fork over the 7 percent Rhode Island sales tax.

This is a great deal for the consumer, but is it fair to the book store owner? And how about state government?

The store owner must collect the tax for the state. This same store management hires local workers, pays property and income taxes and supports the Rhode Island community by contributing to charities and creating economic activity.

This situation is obviously not good for small businesses that maintain our Main Streets and keep downtowns from withering away in the face of competition from the big box suburban retailers.

"We have never made a detailed study of what the effect of this is, but it is obvious we are being hurt by the Internet," Says Chris Byrnes of Books on the Square.

Why are books, toys or books treated differently than, say, airline tickets? If you buy plane tickets online, the airline collects the sales tax and sends it along to the states. Many states, including Rhode Island, have passed laws that would force on-line retailers to collect sales taxes and steer them to stated coffers. But some big Internet retailers, particularly, have fought efforts to enforce this sensible policy.

It may have made sense during the infancy of online retailing to exempt these transactions from sales taxes in order to build up this business. That day is long gone. The U.S. Census Bureau estimates that $3.4 trillion dollars in retail and wholesale sales were made over the Internet in 2009.

There is federal legislation called the Marketplace Fairness Act that would close this Internet tax loophole. The online sales tax measure is supported both Rhode Island U.S. senators, Jack Reed and Sheldon Whitehouse. Reed's office projects that Rhode Island would recoup $70 million a year in new sales tax revenue.

Politicians pay lots of lip service to helping small business. Isn't it about time they leveled the sales tax playing field for the little guys?

Do you have insight or expertise on this topic? Please email us, we'd like to hear from you.