Editor’s note: This op-ed is by Tasha Wallis, a lobbyist for the Vermont Retailers Association.
Vermont’s Blue Ribbon Tax Commission, created by the Legislature, recently presented the findings of their review of the Vermont tax system. The commission made recommendations covering a range of issues.
A crucial issue in the report is the collection of sales tax on Internet commerce: “It is increasingly clear among the states that the explosive growth in e-commerce presents a devastating threat not only to state sales tax collections but to the health of retail commerce in their downtowns.” The Commission estimates a loss of $30 million to $40 million in tax revenues through e-commerce.
Collecting the sales tax on Internet sales does not create a new tax. Vermonters are now obliged to pay such taxes when filing. Currently, however, only 25,000 Vermonters report making out of state purchases and the state collects about $850,000 from these filers.
For Vermont, the vast loss in uncollected taxes is significant. For retailers, the issue is one of survival. Economist Art Woolf has documented the decline in retail in Vermont towns along the New Hampshire border since the introduction of a Vermont sales tax. Towns all over Vermont now face a challenge to their retail sectors from online sales. Many local retailers have stories about customers who visit their stores to learn about a product and then go home to buy it online. In the most recent holiday season, retail sales grew around 3%. Online sales grew in the double digits and are now over 10% of all retail sales.
Many local retailers have stories about customers who visit their stores to learn about a product and then go home to buy it online. In the most recent holiday season, retail sales grew around 3%. Online sales grew in the double digits and are now over 10% of all retail sales.
Online sales have created wonderful growth opportunities for some Vermont businesses. At the same time, brick and mortar stores are squeezed by the unfair advantage of sellers who do not charge sales tax. Paul Bruhn of the Preservation Trust of Vermont has identified online sales tax collection as a key issue in protecting the unique nature of our Vermont downtowns. Local stores are part of the heart, soul and character of our downtowns and part of what makes Vermont special.
The challenge to collecting online sales tax is a court case that determined that a company must have a “nexus” or business presence in a state for that state to collect sales tax from it. Thus, if you make an online purchase from a company with a store in Vermont they will collect sales tax on the purchase. Retailers had hoped that the “Main Street Fairness Act,” which would have created a nationwide framework for collecting online sales tax, would make headway in Congress last year. The “no new taxes” outcry stalled that effort, even though the bill would establish a process for collecting taxes that online sellers can currently avoid.
With the pervasive shortfalls in state tax revenues around America, suddenly state revenue departments are struggling to capture online sales tax revenues in the absence of national action Some states have moved independently to pass Internet tax laws, often called “Amazon Taxes.” New York passed an “Amazon Tax” in 2008 and continues to collect sales tax on Internet sales, even though the law is in litigation. Rhode Island passed an “Amazon Tax,” only to see Amazon sever business relationships in the state.
Illinois recently passed an Amazon tax. Other large states are contemplating the same move. The premise of the larger states is not “too big to fail” but “too big for Amazon to leave.” Amazon taxes in the large states will force online retailers to collect sales tax in those states, but small states like Vermont must take action too. Some are considering legislation that requires notification to consumers of their requirement to pay tax every time they shop online. Others have undertaken taxpayer education efforts to remind taxpayers of their obligation to pay sales tax on online purchases.
Vermont decision makers need to take up this issue and Vermont’s sales tax must be applied fairly and equally to all sellers. Otherwise, the retailers in Vermont downtowns will struggle and the unique quality of downtown shopping in Vermont will disappear.
