In 1992, the U.S. Supreme Court ruled that states cannot require online retail sellers who do not have a physical presence, such as a “store, office, or warehouse,” to pay state sales tax unless the U.S. Congress gives them the authority to do so. Because of this, online retailers in certain states have been able to offer prices close to a 10% discount compared to local businesses. Customers have an incentive to use local stores as “showrooms,” making their final purchase over the Internet (for instance, a customer going to Best Buy to test a product and purchasing the item from Amazon at a discounted price without sales tax). The inability of states to collect sales tax from online sellers has put local, brick-and-mortar businesses at an unfair disadvantage, and it is estimated that states lost $11.4 billion in revenues in 2012.
Georgia has taken incredible initiative towards fixing this loophole. In 2012, the Georgia General Assembly passed HB 386, a bill that requires remote sellers to pay state sales tax should they sell to in-state customers, regardless of physical presence. This bill shows the state’s commitment to fair tax policies for all retailers, both local, main street brick-and-mortar, and online. Georgia is also one of twenty-four states that have joined Streamlined Sales and Use Tax Agreement (SSUTA), a multi-state effort to simplify and align sales tax policies. States in this agreement still have autonomy in determining what goods are taxed at what rate, but they adhere to certain rules such as when they can change these rates, as well as uniform definitions for tax purposes (ex. whether marshmallows are defined as food or candy).
Even though Georgia has taken positive steps on its own, some online retailers point to the Supreme Court ruling and refuse to pay sales tax because there is currently no U.S. Congressional Authority. In light of this, the U.S. Senate passed the Marketplace Fairness Act of 2013, sponsored by Republican Senator Mike Enzi (WY), a bill that requires all large online retailers (more than $1 million in annual remote sales nationally, or more than $100,000 in annual sales in an individual state) to pay sales tax to states who are members of SSUTA or who have met certain standards in the Act to simplify their tax laws. The House version of the bill, sponsored by Republican Congressman Steve Womack (AR), is currently still being reviewed in the U.S. House Judiciary Committee.
In a report, economist Art Laffer points out that U.S. Congressional passage of the Act would increase national GDP by $563.2 billion and jobs by 1.5 million over the next 10 years. He also notes significant benefits to individual states and estimates that as a result of the Act, Georgia’s GDP will grow $15.8 billion and add 50,642 new jobs by 2022.
As Georgia continues to make every effort to be the leading state in which to do business, it is important that it be able to enforce its tax laws. Congressional passage of the Marketplace Fairness Act would hault remote businesses from claiming they do not have to follow state tax laws, and give SSUTA states like Georgia the authority to require them to pay.
To read Art Laffer’s study regarding E-Fairness, click HERE.
To see the specific impacts on each state, click HERE.