As it sometimes comes down to, the most crucial and industry-altering solutions lie with the federal government, such as the increased debate over cap prices for debit swipe fees and the possible pursuance of online sales tax. Online retail giants, such as Amazon, have been flying under the radar in regards to the collection of state sales tax, relying on the upstanding honesty of online shoppers to declare taxable purchases when it comes time to file.
Taxable online purchases once an issue in New York, but since then resolved by legislation, now burden legislators and independent retailers in Connecticut.
Understanding the Loophole
The loophole refers to the 6 percent sales tax Connecticut levies on most transactions, and the fact that most online retailers do not collect and forward the tax to the state. Perhaps this is a loophole for those online retailers or Internet wholesalers, but for the state of Connecticut it’s a crater of immense proportions. Unfortunately, the federal government declared what it thought was an equitable solution when the U.S. Supreme Court ruled in 1992 that a state cannot force a business to collect sales tax if not physically located within the state.
As CT Mirror reporter, Keith Phaneuf, revealed in a recent piece, “While the sales tax raised just under $3.1 billion last fiscal year, less than $8.3 million of that involved online sales later reported and paid through consumers’ income tax filings….In all, states lose a total of $7 billion a year in sales tax revenue, according to an analysis by the Center on Budget and Policy Priorities…” Although Connecticut residents feel they are saving a few dollars in their wallet, it is advocates of the new bill that believe Connecticut residents are only hurting themselves in the long run, as these funds go towards a myriad of resources that individuals use on a daily basis.
Business Update: What Does This Mean for Independent Retailers?
As all pending legislation, there are two sides of debate. Those local retailers and small businesses facing the competition of such online retailers as Amazon, will be glad to compete on a more level playing field. However, for those 2,800 Connecticut companies affiliated with online retailers the legislation could be devastating, especially if these online retailers decide to avoid the legislation by removing service availability statewide.
To learn more about the pending legislation and online retailers’ reactions read the full CT Mirror piece.