Many took advantage of blockbuster savings on Black Friday while others took advantage of the Web on Cyber Monday to score the best deals. Whether you plan to shop just around the corner or have your stocking stuffers shipped from Shanghai, now is a great time to think about the impact of online taxes on our state and in our communities.
During the past few years, online shopping has become its own phenomenon. Initial reports indicate that the Monday after Thanksgiving, known as "Cyber Monday," was the biggest online shopping day in history. According to comScore, Inc., online sales rose 22 percent from last year to $1.25 billion. According to IBM Benchmark, the average Cyber Monday order grew 2.6 percent to $193.24. We should look at the effects of Cyber Monday on our state, how Internet shopping detracts from local businesses and impacts our state revenue, and the possibility of reducing our state's income tax by collecting Internet sales taxes where they are currently ignored.
As consumers, by nature we often have the desire to see the product in person. We will travel to local stores or smaller mom-and-pop establishments to try our product out, decide which model we need, and choose what color we want; after all, who is comfortable buying sight unseen? However, in the end many will log-on to make the purchase taking the tax benefit away from our state and away from struggling local businesses that have invested in our communities and provided needed jobs for Georgians.
Some of you may assume that goods purchased over the Internet are exempt from state and local taxes - at least that is what companies like Amazon.com would like you to believe. The issue is not whether there is a tax liability, which there is, but rather who is responsible for remitting the tax to the State. Similar to store bought purchases, where the buyer generally sees a line added for "Sales Tax," officially the state revenue laws include a "Sales and Use Tax" where the term "use" refers to the obligation of the buyer to pay taxes on out of state purchases which are used in Georgia.
The confusion stems from the 1992 Supreme Court ruling "Quinn vs. North Dakota" which states that retailers do not have to collect sales taxes in states where they do not have a physical presence. As a result, online companies began to take advantage of this grey area that presents a great benefit to them. The basis of the ruling was that only the federal government had the ability to require online retailers to collect and remit the taxes. But states still have the ability to assess the use tax on goods purchased out of state. However, the National Conference of State Legislators estimates that states will lose a combined $23.3 billion in FY2012 in uncollected use taxes. Georgia is estimated to lose approximately $450 million in state taxes next year alone. If collected, that amount could be used to reduce personal income tax by 0.31%.
States have begun to challenge businesses that skirt the system. California passed a law arguing that these local affiliates meet the physical presence requirement and thus the online retailer must collect taxes. After much contention, Amazon has agreed to begin collecting California's tax in September 2012.
Currently, legislators in Washington, D.C. have been pushing legislation known as the "Marketplace Fairness Act." This bill would require the collection of use taxes whether the retailer has a presence in the state or not. The legislation would, however, exempt online retailers with less than $500,000 in annual revenue from the collection requirement.
In the end, Georgia could see a much needed income tax relief from the collection of online sales tax. Additionally, by eliminating the 6%-7% unfair tax advantage given to out of state retailers our small brick and mortar companies will gain from the Marketplace Fairness Act. The current inclusion of sales and use taxes results in a competitive disadvantage for brick and mortar companies. This holiday season as you check off your shopping lists, think about the many benefits our state and our communities receive when we collect a sales tax on products bought within our state lines. Think about the difference you make when you buy locally - whether it's at a big-box chain store or a local boutique. Businesses in our state employ Georgians, build safer communities, and help support our education system. Buying locally reaches far beyond simply collecting a sales tax; it gives us the tools to build our state.
As we approach the 2012 legislative session, we will continue to discuss different options on ways we can lower our state income tax. Many Georgians have voiced their support of a consumption tax that would allow us to lower our income tax by as much as 4%. Collecting on taxes owed to us, such as online sales taxes, may be one of many solutions that Georgia must look closely at in order to decrease the tax burden on our citizens and provide a modernized tax code.