This just in from PR Newswire (May 3, 2011)―“Pennsylvania Losing Hundreds of Millions of Dollars Each Year.” Are they losing or did they just find hundreds of millions of dollars they could be collecting in sales tax revenue?
The Pennsylvania Alliance for Main Street Fairness recently released a study titled, “The Impact of Not Collecting Sales and Use Taxes from Internet Sales into Pennsylvania.” The study reiterates the basics of sales tax, reminding us that you pay tax to a retailer with a physical presence (nexus) in the state but an out-of-state retailer is not obligated by law to collect and remit sales tax to your state of residence. Residents are required, on their own integrity, to report purchases made with out-of-state retailers and pay appropriate taxes to the state of residence—this is referred to as a use tax.
According to the study, Pennsylvania could be collecting from $246 Million to $398 Million in additional sales tax revenue if they were able to require out-of-state retailers, specifically Internet retailers with no nexus in the state, to collect and remit sales tax to the state for purchases shipped to Pennsylvania. In addition to the amount that could potentially be collected, benefits would include increased purchasing by residents from retailers within the state, which would result in an increase of jobs, increasing employment rates and increasing how many individuals would be purchasing consumable goods. This flow down could continue to even more positive benefits for the state and its residents, if calculations are correct.
More than one retailer within a state has declared that Internet sales hurts their business even if the prices are the exact same for an item—the opportunity to pay no sales tax, shipping aside, is very attractive to consumers. Should an Internet retailer offer “super free shipping,” then it is perhaps a no-brainer to purchase online in order to avoid the additional 6-10% in sales tax.
Pattie Diggin, owner of a retail store in Pennsylvania confirms this concern, quoted by PR Newswire as saying, “Today’s customer is always looking for some type of savings or discount, which I offer when appropriate. I wish I could mark down my sales on a regular basis by an additional 6%, but I can’t and it’s a financial burden that is completely unfair.” She goes on to express that “…the easiest and most sensible way…” for the playing field to be leveled regarding sales tax “…is for remote vendors to collect and remit the tax at time of purchase.”
Remove this roadblock to fair commerce and all vendors are on a similar playing field of how to source products in order to bring in the best products for the most reasonable prices—whether they choose to do online sales or foot the bill for a brick and mortar location. With even the big retail locations such as Barnes and Noble and Borders struggling with the electronic age, closing down brick and mortar locations and fighting to find ways to survive, it can only be an even greater struggle for small to medium sized businesses in today’s economy.
About the Author: Susan McLain has over 15 years experience in technical and marketing writing, graphic design, business development and marketing management. She currently works for Avalara, Inc., a Software-as-a-Service (SaaS) company providing automated solutions for sales and use tax compliance for businesses of all sizes. The AvaTax family of products provide accurate, to the rooftop sales tax calculation, automated exemption certificate management and seamless filing, reporting and remittance of sales tax liability.