WILKES-BARRE TWP. — Owners of area brick-and-mortar businesses, including businessman Peter Sides, are keeping a watchful eye on Congress, hoping that the U.S. House will soon follow the Senate’s lead and adopt The Marketplace Fairness Act.
Without a federal law that requires online businesses to collect sales taxes from shoppers, businesses that have the overhead of operating a physical store and the requirement to collect the state-mandated sales tax from customers are at a disadvantage, Sides and others say.
“Businesses all over Northeast Pennsylvania simply want a level playing field when competing against their online-only competition,” said Sides, of State College, who owns the Robert M. Sides Family Music Centers in Wilkes-Barre Township, Williamsport and State College.
The Marketplace Fairness Act would take a giant step toward doing just that. It received a bipartisan vote of approval in the U.S. Senate on May 6, and similar legislation is already pending in the House of Representatives with more than 60 bipartisan co-sponsors, including U.S. Rep. Lou Barletta, R-Hazleton.
“As a former mayor, I have seen firsthand how badly our cities and towns depend on our local merchants to keep our economy moving and create good jobs for our citizens,” said Barletta. “Local retailers have been at a distinct disadvantage because online stores often don’t collect sales tax. I’ve heard many times that people will come into a shop to look at items, particularly electronics, and then go home and buy the same product online to avoid the sales tax.”
Sides said the bill includes a $1 million threshold for companies to have to earn before they will be required to collect the tax. The original version had an even lower threshold, but it was raised, he said.
However, not all area congressmen are in favor of the bill as crafted.
“While the bill has a small-seller exception in place, we have heard from some small sellers that the revenue requirements are still too low,” said Rep. Matt Cartwright, D-Moosic. “While I, too, want to level the playing field for businesses of all sorts, my first priority is to ensure that small sellers are not closing their doors and laying off workers.”
State law requires businesses with a physical presence in the state to collect sales tax, said Elizabeth Brassell, a spokeswoman for the Pennsylvania Department of Revenue.
That means online retailers such as Amazon.com are required to do so because they operate distribution centers in Pennsylvania.
But an online company based in another state that has $1 million or more in annual sales and does not have any retail operations or warehouses in Pennsylvania is not required to do the same. “States are prohibited by federal law from requiring out-of-state companies to collect taxes because it’s a violation of interstate commerce,” Brassell said.
Companies such as Amazon.com and Walmart are supportive of the idea, said Sides, but other e-retailers without operations in multiple states, such as eBay, have been outspoken against the proposal.
A study conducted by economists Art Laffer and Donna Arduin released Wednesday by the Pennsylvania Chapter of the Alliance for Main Street Fairness shows that closing the online sales tax loophole has many benefits, including the potential to lower overall tax rates and jump-start economic growth.
Laffer’s study suggests that passing e-fairness legislation such as the Marketplace Fairness Act would create a tax system with fewer loopholes, a larger base and lower rates for all taxpayers, which could lead to an increase in gross domestic product of $563.2 billion — $15.1 in Pennsylvania — and more than 1.5 million jobs nationally — 43,803 in Pennsylvania — over the next 10 years.
“With analysis like this, everyone can see the benefits of passing e-fairness legislation,” said Sides. “It will help small businesses, like mine, compete against online-only competition in a fair way and create jobs for thousands of Pennsylvania families.”
Sides added that “within the next five years online purchases will outweigh brick-and-mortar sales.” This means the potential revenue loss for states will only grow if no action is taken by Congress, he said.