The U.S. Supreme Court is going to reconsider a pressing issue for national and state businesses: Should online retailers be required to collect sales taxes just like local brick-and-mortar stores?
The court said it will hear a case from South Dakota, where state officials would like to see online retailers that do at least $100,000 in business every year collect sales taxes on purchases.
The issue was first addressed more than 25 years ago, when consumers rarely did much of their shopping online. Now, consumers buy about 10 percent of their purchases on the internet. The Supreme Court ruled in 1992 that states cannot force retailers to collect sales taxes on catalog sales or online unless they have a physical presence in the state.
That causes states such as Ohio to lose out on hundreds of millions of dollars in uncollected taxes. Some companies will also choose not to locate facilities in certain states so they don’t have to pay taxes.
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The law means individual taxpayers in Ohio report how much they owe when they file state tax returns. Some Ohio officials think the law is antiquated and hurting states.
“We applaud the court for picking that up,” said Gordon Gough, president and CEO of the Ohio Council of Retail Merchants. “We’re hopeful for a more favorable decision.”
In Ohio, online retailers that don’t collect the tax typically have a 6 to 10 percent cost advantage over a brick-and-mortar store. That’s enough of a difference for consumers to look online before they buy, Gough said.
Out-of-state online businesses have an advantage over local Dayton area businesses, by not having to collect sales tax, said Chris Kershner, executive vice president of the Dayton Area Chamber of Commerce. The sales tax rate in the Dayton area is about 7 percent, so the savings can be “significant and can put local retailers at a disadvantage,” Kershner said.
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“The retail world has changed, and this federal statute should be revisited,” he said. “The federal government also needs to consider a mechanism which will help smaller online retailers, navigate the complexity of all state’s varying sales tax laws.”
The National Retail Federation is in favor of the Supreme Court’s decision to take up the South Dakota case. NRF President and CEO Matthew Shay said the current sales tax collection rules have resulted in an uneven playing field that’s making it harder for brick-and-mortar retailers to compete.
“The fact that the Supreme Court has decided to reconsider its outdated ruling is encouraging, and we are hopeful it will lead to a positive outcome that reflects the realities of 21st century commerce,” Shay said. “Congress should not sit on the sidelines as the Supreme Court considers this case. It’s time to pass legislation to settle this critical issue once and for all. Even if the court rules in favor of a modern sales tax policy, legislation will still be needed to spell out how that would work.”
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Online shopping disrupted the retail industry, causing thousands of stores to shut down last year. The retail industry, which supports one in four American jobs, is undergoing major changes as consumers shift their focus to online shopping.
In the first few months of the year, consumers will likely see dozens of retailers shutter stores and file for bankruptcy as the fourth fiscal quarter comes to a close. More than 12,000 stores are expected to close in 2018 — up from roughly 9,000 in 2017, according to Cushman & Wakefield, a marketing and data analysis firm.
However, online retailers have brought thousands of jobs to the state. Online giant Amazon already employs more than 3,000 people in Ohio, and it will build another two fulfillment centers. Amazon is currently underway on construction on its one-million-square-foot facility in Monroe, which will create more than 1,000 full-time jobs. The facility near Interstate 75 will house employees who will pick, pack and ship larger customer orders.
Along with the South Dakota case, retailers also want to see the Remote Transactions Parity Act pass, which would allow states to require out-of-state sellers to collect sales tax.
A decision from the Supreme Court on the issue would likely come before the court’s term ends in June.
The Columbus Dispatch contributed to this report.
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