Have you ever gone into a local retail venue, found something you liked then gone home and bought the exact product online? Did sales tax have anything to do with your preference for online shopping? If you answered “yes” to both of these questions, passage of the Marketplace Fairness Act—which could happen within the year—might skew your future shopping habits.
By most counts, Idaho is ready for an online sales tax. A new state law taking effect July 1 creates a fund into which sales tax revenue from online commerce would be placed. If federal “eFairness” legislation is passed, an estimated $50 million will be siphoned into this account annually from those sales.
The Marketplace Fairness Act was passed by the U.S. Senate last year and is currently in the House Judiciary Committee. Claire Burghoff, communications director for Rep. Steve Womack, R-Ark., the bill’s sponsor, said Womack is hopeful for its passage within the year.
The bill leaves it up to each state to equalize taxation between brick-and-mortar businesses and their online competitors, directing that only businesses making over $1 million in online sales would be taxed. While 46 states already have online sales taxes, it’s the consumer’s responsibility to pay those taxes, while eFairness regulation could force large online retailers to collect the tax up front. In Idaho, less than 1 percent of residents pay online sales taxes, according to the Idaho Retailers Association.
“There’s not a difference in the tax rate [nationwide], there’s a difference in who is remitting it to the state and local authorities,” Burghoff said in a phone interview.
Particularly in Ketchum, with its absence of retail franchises and its remote location, online purchases make up a large part of residents’ shopping budgets. Postmaster John McDonald said the number of packages coming through the Ketchum Post Office has increased 7 percent over the past two years.
Some Ketchum residents argue that Idaho’s statewide 6 percent sales tax grants online retailers an advantage over local shops. Even with the imposition of an online sales tax, local businesses would still have to contend with the city’s local-option tax, which adds 2 percent to retail sales, excluding vehicles and groceries.
Gary Hoffman, a semi-retired pediatrician, restarted the Business After Hours forum this spring with his wife, Connie, after a three-year hiatus. He said Ketchum has a unique appreciation of local business, since residents are often buying from neighbors and friends, yet the single-digit tax added onto the ticket price creates a “nonlevel playing field.” Doug Brown of the Wood River Economic Partnership said momentum is building to force large franchises to collect sales tax on online purchases.
“Small businesses regularly get ‘showroomed’ by potential customers, who then buy online where they don’t have to pay sales tax,” Brown said. “That’s a big reason so many brick-and-mortar retailers are falling by the wayside.”
While local residents may want to support small businesses and entrepreneurship, price often deters them from putting their dollars where their hearts are.
“There are certain things where the price difference is so great,” said Jon Duval, director of the Ketchum Community Development Corp., citing the “stark reality of personal finances.”
Though some local consumer goods are challenged by electronic technology (think eBooks), Duval points out that “you can’t buy eShirts, you can’t buy an eBike.”
For outdoor retail businesses in Ketchum, the local product is identical but the online price is too competitive. Backwoods Mountain Sports owner Andy Munter said an online sales tax would be “a huge thing.”
‘I don’t have any problem at all [competing with online retailers] except for that extra 8 percent,” he said. “It’s a matter of fairness.”