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Published May 02 2013

Forum editorial: Time to end unfair advantage

Greg Danz, proprietor of Zandbroz, faces an invisible wall that he and many other merchants face, whether located downtown or in a mall. His store in Fargo must charge its customers 7.5 percent in state and local sales taxes. In Moorhead, the state sales tax takes a bite of 6.875 percent. But an out-of-state, online store without a physical presence in either state can sell at a tax-free discount. To understate the obvious, that’s a badly tilted commercial “playing field” giving the online sellers a huge advantage over their brick-and-mortar competitors. “That’s probably our biggest form of competition these days – the Amazons of the world – and they’ve gotten away without it,” Danz told a Forum reporter, adding that the 7.5 percent sales tax can be a “big factor” when consumers decide where to buy a book.

Fairness and common sense demand that we put a stop to that huge disparity. The Marketplace Fairness Act, now pending a vote in the U.S. Senate, would do just that by giving state and local governments the option of requiring large online stores to collect a tax on sales.

Years ago, during the infancy of Internet commerce, there might have been a legitimate reason for allowing the fledgling technology to get a foothold in the marketplace, unencumbered by the taxes that brick-and-mortar merchants must collect. If so, that day has long since passed. Sales figures provide staggering proof. Online sales last year reached $225.5 billion, up almost 16 percent from the year before – and far outpacing retail sales overall, which rose a modest

4.2 percent, according to U.S. Commerce Department estimates. And online retailers’ slice of the pie is growing. Web sales accounted for 5.2 percent of all retail sales last year, up from 4.7 percent the year before, according to Commerce Department estimates.

The loss to state and local governments last year alone was estimated at $23 billion in revenues. In North Dakota, tax officials estimate that the state’s loss of revenue ranges from $7.5 million to $10.2 million a year. In Minnesota, officials estimate the state lost $397 million in 2011.

State and local governments opting to require collection of sales and use taxes would be limited to online sellers with sales of at least $1 million. That’s a relatively small number, estimated at 1,000 throughout the nation.

Opponents of the proposal argue, falsely, that this represents a new tax. The legislation is permissive, giving state and local governments the authority to collect an existing tax. Although many consumers aren’t aware of it, they should submit taxes for catalog or Internet purchases if the seller doesn’t collect the tax; almost nobody does.

The good news is that the Marketplace Fairness Act in the Senate and a similar bill in the House appear to have broad bipartisan support. All four of the senators in North Dakota and Minnesota support it, as do the state’s governors. It’s time to tear down the invisible barrier that unfairly applies to brick-and-mortar shops like Zandbroz, and not to most online sellers.

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Forum editorials represent the opinion of Forum management and the newspaper’s Editorial Board.