Thanks to a 5-4 decision by the U.S. Supreme Court in June, states are now allowed to mandate the collection of state sales tax on items purchased online from out-of-state retailers. Passing such a measure in New York, with certain stipulations, would benefit small businesses of all types.
In the Supreme Court case South Dakota v. Wayfair, South Dakota argued that billions of dollars were lost annually because retailers in other states were not adding state sales tax to online purchases.
The state sued retail websites Wayfair, Overstock and Newegg. The court’s ruling overturned a 1992 decision that prevented states from collecting a sales tax on mail or online purchases unless the retailer had a physical presence in the state, and effectively affirmed the constitutionality of state laws that would mandate the collection of the tax.
Many small businesses in our local communities believe that the decision will level the playing field and help them compete with sites like Amazon.com. The Seattle-based online bookstore — which was losing money in 1997 — passed Microsoft in February to become the world’s third-most-valuable company, worth about $700 billion, behind only Apple and Alphabet, the parent company of Google.
Along the way, Amazon has crippled many small businesses, in part because it has not had to charge a sales tax, thus lowering its prices. It’s about time that the states give local merchants a fighting chance against the online behemoths by requiring them to charge a state sales tax.
The New York State Legislature should immediately pass, and the governor should sign into law, a measure requiring online sellers to charge the sales tax. Lawmakers must, however, be cognizant that a number of small businesses have set up their own online selling operations, and do not necessarily have the wherewithal to keep track of sales tax rates in 50 states. That’s an easily resolved problem, though: don’t require small businesses to charge sales tax, as was the case in South Dakota.
The South Dakota Legislature’s law, requiring out-of-state sellers to collect a 4.5 percent sales tax, “as if the seller had a physical presence in the state,” covers only sellers that have more than $100,000 in annual sales or 200 transactions in the state.
No doubt, the so-called little guys would still have a tough time competing against the mega-corporations, no matter what. Amazon still has the advantage of economy of scale. Adding a state sales tax to online purchases could, however, make at least some online shoppers think twice about buying on their computers or phones, and instead move them to take a walk to the local hardware store, boutique, eyeglass shop or florist — the businesses that are an important part of our towns’ and villages’ tax base.
Chambers of commerce in our communities know what they are up against when it comes to keeping local businesses healthy. Some, like Rockville Centre’s, have taken steps to beautify the downtown, provide free parking on Saturdays in December to encourage local holiday shopping, and have even created scavenger hunts to draw more residents to their shops. In Long Beach in 2016, the Chamber of Commerce created a Holiday Window Decorating Contest to help catch the eyes of passersby and increase sales, and Black Friday and Small Business Saturday deals proliferate in local shops across the South Shore each year.
Money spent locally stays local. The Institute for Local Self-Reliance conducted a study in Maine in 2003 that showed that every $100 spent at independent small businesses generated $45 of secondary local spending, compared with $14 for a big-box chain.
Studies conducted by the private research firm Civic Economics showed similar results, finding that an average of 48 percent of the price of each purchase at local independent businesses was recirculated locally, compared with less than 14 percent of purchases at chain stores, many of which have a large online presence.
Sales tax is the leading source of revenue for Nassau County, accounting for 39.5 percent of the major operating funds in the county’s 2018 budget, or nearly $1.2 billion, according to a release from county Comptroller Jack Schnirman.
Schnirman points out that, according to the Long Island Regional Planning Council, collecting online sales tax could help Long Island generate more than $92 million a year in new revenue for the government.
Let’s level the playing field and give more residents a reason to support small businesses and shop locally by requiring online merchants to collect sales tax.