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A Path to Reforming Our Broken Sales Tax System | Commentary

By Daniel L. Goodwin The ingenuity of the American entrepreneur has created an accommodating and diverse consumer marketplace over the past two decades. Through the rise of the Internet and emerging payment-processing innovations, countless businesses have been able to supplement their brick-and-mortar storefronts with an online sales presence. Unfortunately, our country’s sales tax system has not adapted to the convergence of digital and physical commerce. This has resulted in harsh consequences that have lingered on for nearly 20 years in the form of the unfair tax collection advantage that online-only retailers — such as eBay and Overstock — hold over millions of stores on Main Street.  

Thankfully, this wrong can still be righted. With renewed bipartisan momentum now in the Senate, it is time for all of our elected officials in Congress to work toward expeditiously passing the Marketplace Fairness Act of 2015. This bill is a path to reforming our broken sales tax system.  

To illustrate the anti-competitive elements of today’s marketplace, think about your own shopping experience. When you pay for a new pair of shoes, it is considered a sale — regardless of whether you make that purchase in-person at a local shopping center or online through a boutique’s website.
But unlike your local stores, online-only retailers do not collect sales tax at the moment of purchase. Believe it or not, the onus is on you to report and pay any necessary tax to your state’s department of revenue. It is easy to see why you and the brick-and-mortar stores in your neighborhood — which are legally required to collect sales tax if the state imposes one — bear the brunt of an unfair system.  

As someone who has spent close to 40 years in the commercial real-estate sector, I am increasingly concerned about the inequities in our marketplace. This sentiment is fortunately shared by the group of senators — Michael B. Enzi, R-Wyo.; Richard J. Durbin, D-Ill.; Lamar Alexander, R-Tenn.; and Heidi Heitkamp, D-N.D., as well as others — that introduced the latest Marketplace Fairness Act. They know, much like the rest of us on Main Street, that we cannot accept a sales tax system that hinders American shoppers, businesses and local communities.  

For consumers, maintaining the current system prolongs an archaic legal burden and a major shopping inconvenience. Shoppers will remain responsible for tracking purchases made online and then calculating the proper sum owed to their respective states. A failure to follow this process translates to breaking the law under our current system. Additionally, consumers stand to lose over the long-term when local businesses — which offer necessaries, specialty goods and custom items — cannot carry as much inventory or are ultimately forced to close due to the uncompetitive climate.  

For brick-and-mortar businesses, the continuation of today’s system is akin to a death sentence. Local stores that must collect a sales tax increasingly function as showrooms for shoppers, who want to examine items and then order the same products online to save 5 percent to 10 percent in taxes. If this trend continues, we will see more businesses closing in our neighborhood shopping centers and town squares; our teenagers will be unable to find traditional part-time work; our neighbors will be unable to find that second job; and our communities will lose time-honored traditions such as Santa Claus sitting in the local department store every December.  

For our communities and states, congressional inaction will bring additional economic and social impact. When brick-and-mortar businesses downsize or shutdown due to the marketplace, existing employees face both reduced job security and stagnant wages — plus the community endures weak job growth and an across-the-board reduction in tax revenue. This loss of tax revenue forces communities to make painful decisions, the most common being raising property taxes or cutting back on popular educational, recreational and public works services.  

Last but not least, let us not forget the social downside that also comes when businesses can no longer sponsor little league teams, and organizations like the Salvation Army have no stores to stand in front of when advocating for society’s most needy. These are voids that online-only retailers will never be able to fill.  

In the coming months, Congress will have ample time to debate the clear merits of the Marketplace Fairness Act and then pass a suitable version of the bill. Our responsibility during this time is to remind elected officials on Capitol Hill just how crucial this legislation is to American shoppers, businesses and communities. This action can go a long way to supplementing the current efforts of the International Council of Shopping Centers, Marketplace Fairness Coalition, NAREIT and hundreds of other local and national trade associations.  

With deep experience purchasing and managing large retail shopping centers, I know the central role that commerce plays in supporting our shared American dream. Restoring fairness to our marketplace is an important step toward making that dream a reality for more of us in 2015 and beyond.  

Daniel L. Goodwin is Chairman and CEO of The Inland Real Estate Group of Companies, Inc.

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