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Fred Kruger

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Guest Post: Government Shouldn’t Use Sales Tax to Pick Winners and Losers

Friday, August 12th, 2011 - by Fred Kruger

High-profile state legislative battles have dramatically increased public awareness about retail sales tax collection inequities that pit online retailers like Amazon.com versus much of the rest of the retail world. Unfortunately, due to an aggressive lobbying and public relations campaign on the part of Amazon, much of that public awareness has been built on misinformation.

As such, allegedly “greedy” state legislators are falsely accused of “raising taxes” or supporting “higher taxes” on businesses that create jobs during a terrible economic downturn. Everything about this narrative is incorrect. In fact, the failure to require Amazon to collect state sales taxes is an anti-business exemption that disproportionately harms small business customers and local retailers and results in new and more taxes.

Changes to state law, such as that which occurred recently in Texas, cannot honestly be called a tax increase. A tax is owed on every online retail purchase made. This has always been the case. And until Texas’ new law, that tax liability fell on the shoulders of the consumer, many of whom were totally unaware. A reminder to pay that tax appears on their tax filing, though most taxpayers ignore it. States don’t audit every individual who fails to pay these taxes; that would be impossible. But small business owners who purchase substantial portions of their supplies through an online retailer are in jeopardy of triggering a state audit.

Who should be required to absorb the administrative and legal costs associated with state sales tax compliance – the small business purchasing office supplies or the nation’s largest online retailer with a fleet of lawyers, lobbyists, accountants and compliance experts?

A common refrain in politics today is that the government should not be in the business of picking winners and losers. And yet that is precisely what Amazon’s tax exemption does. It pits Amazon against brick-and-mortar retailers, while burdening community-based business owners with the added costs of collecting and administering state sales taxes. This sets up an uncompetitive environment that punishes job creators by increasing their prices relative to Internet retailers.

This isn’t merely, or even primarily, true of the so-called big box chains. Smaller, locally-owned retailers are the principal victims of this unfair tax regime. Their ability to compete on price against the online giants is made exponentially worse by forcing them to collect the tax at the point of purchase while exempting Amazon.

“The push to gather back taxes from online companies such as Amazon is taking place all around the country, not just in Texas,” wrote the Texas Conservative Coalition in an analysis of a measure to ensure tax fairness in the Lone Star State. “Amazon appears to fall squarely within the current law that requires a retailer to collect sales taxes if it does business in this state.”

What has been the result of this unfair tax structure? Last month Amazon announced record revenue growth. Can you say that about the downtown retail shops in your community? Of course not. In the current economic environment they are fortunate to even be in business.

Texas has leveled the playing field for small retail shops throughout the state. In addition to the Lone Star State, more conservative-oriented states are concerned about ensuring sales tax equity. As South Carolina’s conservative Gov. Nikki Haley has said of Amazon, “Don’t ask us to give you sales tax relief when we’re not giving it to the book store down the street or we’re not giving it to the other stores on the other side of town, it’s just not a level playing field.”

Tax fairness is the right policy for small business in America.

The Kruger family has been in business in Texas since 1906. David Kruger is the third generation to run Kruger’s Jewelry in their current location on Congress and 8th Street in downtown Austin since his father, Aaron, opened in 1939 and has served generations of Texans.

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