WEST PITTSTON — The unfair sales-tax advantage some brick-and-mortar establishments believe Internet retailers have could soon be sent to the deleted folder.
And while one local e-commerce business owner doesn’t think the Marketplace Fairness Act will hurt sales, he’s taken issue with the exemptions folded into the bill.
The U.S. Senate approved the act Monday night in a 69-27 bipartisan vote. Seven of the no votes came from senators representing states that do not a have sales tax. The long-debated bill would lead to millions of consumers getting charged a sales tax on purchases made online.
The legislation, which still needs to gain passage in the House and the signature of the president, would allow the 45 states and the District of Columbia that now charge sales tax to require larger online retailers to collect sales tax on purchases made by their residents.
“This is really Walmart vs. Amazon, and we’re stuck in the middle,” said Spencer Chesman, president and owner of West Pittston-based iGourmet, an online retailer of specialty foods and gift baskets.
The Amazon he referenced is Amazon.com, an online retailer that had previously been opposed to such a tax. But as it’s grown and set up distribution centers in multiple states, including Pennsylvania, it has been forced to collect the sales tax more and more.
While iGourmet has nowhere near the sales volume of Amazon.com, Chesman’s 16-year-old company now boasts sales of more than $10 million annually, meaning his business would be among those forced to collect the tax if the bill is approved as written.
The law would apply only to online businesses that have sales of at least $1 million in states where they don’t have physical operations, like a retail store or a warehouse. Because Amazon.com has warehouses in multiple states to cut down on delivery times, it has been collecting the sales tax in many of those states, including Pennsylvania.
But other local online businesses such as Sugar Plum Chocolates in Forty Fort, which have not reached that $1 million in annual sales plateau, would continue to be exempt.
Chesman said the ability of some businesses to continue not to collect the tax while others are forced to is arbitrary and unfair.
“I don’t understand why there’s this exception out there. Either you’re taxable or you’re not,” Chesman said.
“It’s a big topic of conversation in the industry,” he said.
The Marketplace Fairness Act requires each state to establish a uniform tax base if it wants to apply its sales tax to out-of-state retailers, but it leaves it up to each state to determine which products/services are taxable. For example, Pennsylvania law currently exempts foods that are not ready to eat from its sales tax, and that would not change under this bill.
But if the state a customer lives in has a sales tax on food products, then the online business with more than $1 million in sales would be required to collect sales tax on that customer’s purchase.
U.S. Sen. Pat Toomey, R-Zionsville, was among those voting against the measure and cited the $1 million exception as one of the reasons.
“I voted against the Marketplace Fairness Act … because I’m troubled that many difficult issues relating to this policy have not been addressed. I understand the concerns that many retailers in my state have raised about online sales. I have also heard the concerns of online retailers who would be subject to the thousands of tax jurisdictions across the country,” Toomey said.
“Moreover, it is worrisome that the small-business exception of $1 million in revenue is too low and this could have a negative impact on very small businesses,” Toomey noted. “These issues should be thoroughly examined by the Senate Finance Committee before the bill is considered by the full Senate. Unfortunately, this bill was rushed to the Senate floor without the benefit of hearings, vetting or discussion.”
The bill drew a supportive vote from U.S. Sen. Bob Casey, D-Scranton.
John Rizzo, a spokesman for Casey, said the senator “voted for the Marketplace Fairness Act to ensure that small businesses across Pennsylvania have a level playing field. The bill will ensure that brick-and-mortar and online retailers play by the same set of rules.”
It also would generate revenue for cash-strapped state budgets.
The year 2012 saw $225.5 billion in online sales, according to the U.S. Department of Commerce. Estimates from the National Conference of State Legislators are that states lost out on a combined $23 billion in uncollected sales-tax revenue last year.