President Trump, Tax Champion?

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By Paul Caron | January 30, 2018 If President Trump, the deal maker, is looking for an easy political win, it’s sitting right in front of him. All he has to do is put money back in Americans’ pockets.

In recent times, tax debates have frequently devolved into heated arguments pitting the ‘Haves’ vs. the ‘Have Nots’, putting one socioeconomic class against the other. There’s a way for President Trump to add tax revenues to states while also helping lots of middle and working class retail owners and workers: he could ensure that states receive their ‘fair share’ of taxes that they are owed to them. In fact, President Trump could become a ‘Champion’ to states, (helping assuage the fears about anticipated federal funding cuts to states), by urging Congress to repeal restrictions that prohibit states from assessing sales taxes on Internet purchases.

Had states been able to collect sales tax from all remote sellers in 2017, total government revenue collections would have increased somewhere between $8 to $13 billion, according to a report issued in 2017 by the United States Government Accountability Office (GAO). For example, for Massachusetts, that would’ve meant between $169 million and $279 million in new tax revenues.

Under current federal law, online retailers do not have to collect and remit sales taxes from customers to states where the company does not have a physical presence. Traditional brick-and-mortar retailers have long pushed for Congress to change the law, arguing that the loophole gives online retailers an unfair competitive advantage.

The federal law was adopted at a time when the Internet was a ‘fledgling start-up industry’. Advocates for the Internet argued that prohibiting states from assessing local sales taxes would help nurture the new industry. That industry has indeed grown, so much so that it now threatens traditional brick-and-mortar retail stores.

The dispute is headed to the U.S. Supreme Court, as the Court has agreed to hear South Dakota vs. Wayfair, a petition of South Dakota seeking to have the High Court throw out it’s 1992 Quill vs. North Dakota ruling.

According to William Rennie, Vice President of the Retailers Associates of Massachusetts, “We’ve got brick and mortar retailers here who have to collect the 6.25% sales tax, while online sellers selling the exact same product, from a website based in California, are enjoying a 6.25% price advantage because they’ve been allowed to avoid the collection of the tax.”

This unfair advantage to Internet sellers has had a devastating impact on our local retail community, seen by the number of retail stores that have closed due to the unfair competition they face from growing Internet sales. The closing of those stores has also resulted in the loss of thousands of jobs.

Now, some 25 years since the Quill vs. North Carolina decision, the retail dynamics have reversed. Just ask yourself how many times you ordered a gift online this Holiday season, and enjoyed the comfort of doing so from your own home?  While it may have been convenient for you, the resulting impact adversely affects the local retailer who suffered the loss of those sales.

The web now comprises nearly 42% of the growth in the U.S. retail market.  In 2016, US online retail sales reached $394.86 Billion, a 15.6% increase over 2015. With each year’s growing success, E-commerce robs states of billions of dollars in sales tax revenues they are due.

So, President Trump, please step to the table.

Paul Caron is the President of Paul Caron Associates and served in Massachusetts politics for several decades.