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A Law Favoring Business Districts that Would Force Online Retailers to Pay their Fair Share

Michael Lipsky

In every society, the marketplace—the physical marketplace—brings people together not only to exchange goods and services, but to meet one another, socialize, and exchange ideas.  Markets are the places from which communities arise, and where people of different strata and clans converge.      

The business district in American cities and towns served such purposes, and still do to some extent. In fact, and despite the rise of the mall, the human scale of our town and business districts continue to attract people to them, even as the big box stores lose some of their luster.  These days every small town wants a farmers market to attract people into town. Lucky is the small town whose enlightened civic leaders have opted to restore the downtown area—Boise, Sacramento, Boston, and the like. 

Markets are built and operate mostly organically, thriving when sufficient numbers of buyers and sellers are attracted to a spot.  But they are strongly influenced by political developments.  Zoning, parking and health regulations, highway and road construction, and many other laws and policies affect the location and health of markets.  

For years American businesses that present themselves directly to customers have been fighting headwinds because online retailers did not pay sales taxes, required of merchants in all but five states.  With businesses having physical presence charging sales taxes at five to 10 percent, while online retailers were not so obliged, it’s no wonder that consumers got used to the idea that goods were cheaper online. 

By failing to apply these tax laws across the board, Americans in essence were participating in the erosion of their business districts—part of the essential infrastructure of their communities.

Next week the U.S. Senate is scheduled to vote on a measure that would level this playing field.  The Marketplace Fairness Act would require all online retailers to pay sales taxes to those states that require them.  It would also require states to conform their laws to allow computerized accounting systems to calculate the taxes in ways that do not burden merchants or retailers.  Not so long ago, keeping track of these obligations seemed so daunting that online retailers were able to turn back such efforts; not any more. 

One of the most important beneficiaries of the proposed law will be state and local governments, which each year lose about $11 billion in taxes on Internet sales, according to Michael Mazerov of the Center on Budget and Policy Priorities, who has been tracking the issue for years.   These sums would be very welcome by schools and other public services that will be competing for scarce resources in the coming period of revenue reductions from the Federal government. 

On another level, beneficiaries would be your neighborhood bookseller and your giant electronics emporium, which will compete on even ground with the mega-emporiums on the internet.  Also benefiting would be the blocks of shops across the country that will now have a better chance of getting you to stop by.