Online retailers have a distinct advantage in the marketplace when compared to local, Wisconsin-based businesses. They are essentially being subsidized by an outdated, pre-Internet sales tax loophole that allows them to avoid what should be their responsibility to collect and remit Wisconsin’s sales tax.
As Congress moves to finally close this online sales tax loophole — responding to growing support from local businesses and tax-conscious citizens nationwide — they must be mindful not to create more problems than they are trying to solve.
Case in point: the entire notion of something called “origin-based sourcing.” Batted around as a possible alternative to current e-fairness legislation, the Marketplace Fairness Act, origin-based sourcing would be a disastrous approach for both Wisconsin businesses as well as taxpayers. It should be a nonstarter for our elected officials.
Under an origin-based sourcing scheme, consumers would be forced to pay sales tax based the origin of the item they are ordering, rather than their location. That means if you order something online from California, you — as a Wisconsinite — would have to pay the California sales tax. Your money would be sent to California, where it would be used to fund services you’ll never use in a state in which you don’t reside. Since you also have no vote in California, you would essentially have no say in how your money is spent. Origin-based sourcing amounts to taxation without representation, plain and simple.
If you have any qualms with paying taxes to your state, then you should be especially wary of an origin-based sales tax — it could make you a taxpayer in all 45 states that collect sales taxes, even if Wisconsin’s sales tax rate is lower.
Moreover, an origin-based approach to taxing online products does absolutely nothing to close the online sales tax loophole. In fact, it opens the door to an entire new set of legal loopholes that online retailers could exploit to maintain their advantage in the marketplace. For example, online retail giants could simply relocate their offices, warehouses, or distribution centers to states with no sales taxes, enabling them to continue undercutting local Wisconsin retailers on price.
The Alliance of Wisconsin Retailers represents businesses across the state that employ thousands of hard-working Wisconsinites. We are proud to be a part of communities both big and small. We pay taxes to fund schools, police and firefighters. We have no problem competing on a level playing field. But, that playing field currently gives an unfair advantage to out-of-state companies that sell online.
It’s well past time for Congress to close this tax loophole, but origin-based sourcing is an antidote that may very well be worse than the disease. For that reason, we are calling on our Congressional delegation to oppose this misguided notion and focus on real solutions to level the playing field so all businesses — online or offline, large or small — can once again compete fairly.
Scott Stenger is the executive director of the Alliance of Wisconsin Retailers