Sharon Madland figures she’s at enough of a disadvantage already, without the tax code piling on.
She and husband Bob own Thompson’s Jewelry in downtown Baraboo, one of many brick-and-mortar retailers battling online competitors. The Madlands pay to heat and light their store and they — unlike Internet sellers — are responsible for collecting sales tax on every purchase.
“It makes it harder to compete,” Sharon Madland said.
Thompson’s Jewelry belongs to the Wisconsin Jewelers Association, one business group that’s pushing the government to close a loophole that doesn’t require online retailers to collect taxes on sales made outside their own states. Wisconsin law requires state and local taxes to be paid on any purchase, whether it’s in a store or on the Internet. But while brick-and-mortar stores collect sales tax at the register, the onus for taxes on most Internet sales falls on the consumer.
Madland said she wonders how many consumers are aware they’re responsible to report online purchases on their tax form — and she’s not alone. “A lot of people don’t know,” said Scott Stenger, spokesman for the Alliance of Wisconsin Retailers. State law hasn’t been updated since the early 1990s, when catalogs posed brick-and-mortar stores’ greatest threat. “It’s a law that never anticipated the Internet,” he said.
Last month, U.S. consumers spent an estimated $1.5 billion on Cyber Monday, a 17 percent increase from 2011. The next day, another $1.25 billion was spent online. The day after that, another $1.1 billion. These sums are getting noticed by retailers and legislators alike.
When consumers fail to pay their state sales tax as required, state and local units of government are shortchanged. Plus, side-stepping sales tax makes online merchandise a few dollars cheaper for consumers, posing one more disadvantage for a store like Thompson’s Jewelry that’s already struggling to compete with Internet giants that amass inventory in bulk and offer one-click convenience.
“They’re driving right through a loophole, knowing it’s a loophole,” Stenger said.
Business groups want the playing field leveled. Some states have passed laws to enforce sales tax on online purchases, but the Wisconsin Legislature, set to reconvene next month, hasn’t. The Alliance of Wisconsin Retailers wants Congress to set a national standard for online transactions.
“We want to have fair competition, where the government doesn’t pick winners and losers,” Stenger said.
State Rep. Fred Clark, D-Sauk City, said consumers pay sales tax on an estimated 10 percent of online transactions. This costs the state $75-150 million in tax revenue. “We definitely could, and need to, do more to collect online sales tax,” Clark said. “It’s a growing gap that costs the state money and makes it harder to be a retailer with a physical presence.”
Clark said online retailers could solve the problem by voluntarily collecting sales tax. “They could do it in a heartbeat if they wanted to,” he said. “I’d rather hold the online retailer accountable than asking every consumer that’s bought something online to make a note of it.”
He said the next best thing would be a national standard, as federal regulations restrict states’ taxing authority on retailers that don’t have stores within their borders. Clark vowed to mention the issue to Mark Pocan, the district’s newly elected congressman.
Until the law changes, retailers like Madland will keep fighting an uphill battle. And perhaps spread the word to customers that they’re supposed to pay sales tax on Internet purchases. “I didn’t have any idea you were supposed to do that,” she said. “But I don’t buy online.”