It’s Time To Tax Internet Sales

This week’s Courier Herald column:

JCPenney, once among the nation’s largest and proudest retailers, announced last week that it would be closing an additional 138 stores nationwide. Five Georgia stores, including those in Dublin, Macon, Milledgeville, Thomasville, and Tifton will be shuttered.

While JCPenney has had recent struggles trying to define its brand and marketing mix, it is not an outlier in the retail landscape. Macy’s announced in January that it is closing 68 stores nationwide including their Athens location in Georgia Square Mall. Sears Holdings, which operates both Sears and K-Mart stores, is also planning on 150 store closures this year, including Georgia locations in Columbus, Cornelia, Kingsland, and Savannah.

The trend against many established big box retailers is strong, and appears to be growing. There are also signs that it’s not just department stores experiencing capacity issues. A recent Atlanta Journal Constitution report suggests that the metro area may have too many grocery stores.

While some of the closures are due to newer, smaller, and more nimble competitors entering the market, it’s now also easy to see a broad shift from large brick and mortar retailers to internet sales channels. The days of the internet being a new fragile frontier of commerce are over.

Customer acceptance of ecommerce has changed shopping online from a quirky novelty to the major driver of consumer sales. With the integration of retailers’ websites into smartphone apps, each of us now walk around with access to anything we want at any time, right in our pockets.

Amazon, which began with books and expanded to dry goods and apparel, is now offering grocery staples and even fresh produce through its distribution channels. Restaurants are not without competition as well, as a broad band of companies marketing prepared cook at home meal kits are aiming to stem the trend of eating out versus cooking at home. Their pitch? Ship all the ingredients for one meal in a box together, so that busy people like us can skip the traffic and hassle of going to a grocery store.

What does all of this mean for those of us here in Georgia? Those who shape policy are going to have to quit treating internet based commerce as a novelty and understand it is an established and permanent part of our economy.

The biggest policy change must come from Washington, where policy makers will need to create a nexus that allows for sales tax collection by states of internet commerce transactions. Georgia is able to collect sales taxes from companies that have a physical presence in the state. That takes care of the larger e-tailers like Amazon. But many smaller and growing specialty sites are able to take sales away from struggling retailers and no tax is paid on the transaction.

Those that write Georgia’s tax policies are aware of a desire (at least from a large and motivated cross section of their Republican base) to lower income taxes and shift the tax burden to a broadened sales tax base. A bill before the legislature and expected soon on the Governor’s desk will lower the state’s top income tax rate from 6% to 5.4%.

Those that demand the shift to a broadened sales tax base like that part of the plan, but many then form cognitive dissonance when leaders attempt to do the other half of the policy and broaden the base. The internet and its retailers are the clearest part where the base must be extended, because these are sales that formerly made up our tax base, but many now are not.

There’s more to the shift to internet commerce than just marginal tax collections. With many mall retailers and strip center anchor tenants closing, there is a direct effect on local property tax collections. A mall without one of its anchor tenants is less valuable, and thus lowers property taxes. According to a recent report by CNBC, a mall that loses two of its anchor tenants often triggers clauses in smaller tenants’ leases allowing them to lower rents or vacate the property, causing a further decline in property and sales taxes, as well as the number of local jobs available.

A national move to tax internet sales will neither “punish” e-commerce nor have the government “pick winners or losers”. Quite the opposite. Right now, the internet loophole is providing an incentive to online retailers at the expense of those who invest and create jobs in our local communities.

A change will level this playing field. It will not stop the internet from growing nor stem the tide of older, out of touch retailers closing. But it will return equal market forces to the competition between the two, while also ensuring there is a sufficient sales tax base to continue the shift from an income-based to sales-tax based tax policy.