First they came for the mom-and-pop stores, and I did not speak out because I was a state park ranger who still had his neighborhood Borders and Circuit City. Then they came for the big box retailers, and I did not speak out: I could still go on eBay to buy and sell all of my tchotchkes. Then the state budget deficit forced the park service to eliminate my job, and I had no money to buy anything at all.
Other than modifying the original words of Lutheran pastor Martin Niemöller, the scenario above outlines an increasingly relevant reality faced by many state governments and retailers across the country.
The growing presence and popularity of online retailers like Amazon, Overstock and Zappos have reduced the amount of sales tax collected by state governments over the past decade nationwide. This economic phenomenon is rooted in a ruling by the Supreme Court in 1992, which declared that only retailers with a physical presence, a so-called “nexus,” in the state where a customer resides could charge state sales tax on purchase orders, unless Congress takes specific action to combat this practice.
At first, it seemed this ruling created a business opportunity: Fledgling online retailers in the early ’90s would be able to properly compete with strong retail chains that were then in the process of wreaking havoc on locally owned independent shops. Today, however, we have seen Borders, Circuit City, Linens ‘n Things and many other retailers shut down operations due to a migration of customers seeking to avoid sales tax by shopping online. In fact, the National Conference of State Legislatures claims $23 billion in cumulative potential tax revenue was lost due to online purchases.
The remaining retailers are struggling, quickly reducing store numbers and entering offshoot businesses such as phone and bookstore café sales simply to sustain operations. Recently unemployed citizens (including many former government workers) have less money at their discretion and are purchasing more household products on the Internet, escalating the issue further. However, the future looks bright. About two weeks ago, a bipartisan majority group of 75 senators approved the Marketplace Fairness Act, an amendment to a proposed federal budget plan that allows states to collect sales taxes on sales made by online retailers in other states.
We must pressure Congress to enact this proposal by staging rallies, writing letters and spreading awareness of the issue to our friends and families so an easy hole may be plugged in state finances. Otherwise, we will soon find out that the current trend in national consumption is unsustainable. Forget the occasional closed mom-and-pop shop. Instead, try to imagine vast commercial real estate wastelands emerging in the place of today’s malls and shopping strips. It sure is great saving a few bucks on that dress you found online, but the long-run effects might not be worth it.