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Traditional Sellers Challenge Online Retail Tax Loophole

Written by Tim Morral
Published: 5/29/2012

National Retail Federation calls for lawmakers and the retail community to address the tax loophole that gives online retailers an unfair competitive advantage.

All retailers aren't created equal -- or so the National Retail Federation (NRF) contends in its latest campaign, an effort to inform lawmakers and the public about how an online sales tax loophole is putting brick-and-mortar retailers at a disadvantage.

Online Retail Sales Tax Loophole

In 1992, the Supreme Court ruled that the law only requires "remote sellers" to collect sales tax in states where they maintain a physical presence, usually in the form of a corporate headquarters, store or warehouse. Since most online sales aren't taxed, online sellers enjoy a competitive advantage over local sellers when it comes to collecting sales tax. The online sales tax loophole also impacts municipalities and state governments, shorting public coffers by as much as $24 billion per year in tax revenue.

"Our current sales tax system unfairly favors one set of retailers over another," NRF President and CEO Matthew Shay said. "Congress is naming winners and losers by its failure to address this issue, and the brick-and-mortar retailers who create jobs across our country want action on this issue now."

In a stance shared by nearly all traditional retailers, the NRF argues that retail sales are retail sales, regardless of whether they occur online or over a store counter. To promote competitive equity, the NRF has launched a 60-day awareness campaign and is calling on Congress to take national action in addressing the loophole.

"In light of the Supreme Court ruling, this is a constitutional issue that requires a congressional solution, it's not a matter the states can resolve on their own," Shay said. "Congress needs to pass legislation that is universal and covers all retailers yet provides flexibility that makes it practical for states to participate and businesses to comply."

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