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Online sales, offline ails


Carolyn Stager December 21st, 2011

The weather is turning chilly, the mall parking lots are full, and one might wonder, “Where is the recession?” As full as the parking lots may be, however, there are many choosing to stay in from the cold and, for convenience, shop from their computers.

Cyber Monday 2011 was the largest online shopping day in history with $1.25 billion spent.

While that doesn’t sound so bad for our national economy, it has a huge, negative impact on businesses and municipalities in Oklahoma.

Businesses in Oklahoma are required to collect sales tax from their customers and remit to the state, with that revenue then distributed to municipalities. Unlike these local businesses, however, many outof-state online companies are exploiting a tax loophole and not charging sales taxes at the time of purchase.

This gives out-of-state competitors an unfair advantage over businesses that are the backbone of the local economy and employ your friends, family and neighbors. These Oklahoma businesses also sponsor our children’s Little League teams and are involved in civic and community organizations.

Oklahoma is the only state in which municipalities do not receive ad valorem taxes for general operations. Instead, that source of revenue is dedicated primarily to schools and counties. While none of us like to hear the word “taxes,” especially this time of year, it is important to remember that Oklahoma cities and towns are overly dependent on local sales taxes to fund basic services: police, fire, roads, parks, libraries and road maintenance.

Sales tax is a historically inconsistent source of revenue, and the rise of the Internet marketplace has put Oklahoma cities and towns in an especially troubling position due to this loophole. Tax-free online shopping places the burden of paying that tax on the customer, who is generally unaware that this “use” tax must be claimed and paid on their yearly tax return.

That tax is remitted so rarely by the consumer that some estimate Oklahoma municipalities are losing up to $225 million per year in tax revenue. Inconsistent sales tax revenue makes it difficult for municipalities to offer consistent services year-to-year.

Several bills currently pending in Congress — notably, the “Marketplace Equity Act” and the “Marketplace Fairness Act” — will solve these inequities, if passed. If you decide to stay out of the cold and shop online, we encourage you to do the right thing and claim these purchases when filing your Oklahoma taxes. Our cities, towns and local businesses thank you!

Let’s make this the last holiday season that local businesses are forced to operate under a different set of rules than their online competitors.

Carolyn Stager is executive director of the Oklahoma Municipal League.

 
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12.21.2011 at 12:01 Reply

I understand where you are coming from, but you must understand that your position is totally bias to your cause.  I understand that you need these funds to provide a number of services, but perhaps you can turn this crisis into an opportunity; an opportunity to create value locally that give consumers an incentive to shop locally.

My biggest peeve with buying goods locally is the run around I have to do just to get what I want.  It’s this premise alone that allows Wal-Mart to thrive.  I seriously hate Wal-Mart, but how can you ignore the convenience of being able to buy groceries, clothing, and general merchandise all in one store.  This is the appeal of online retailers.  Not to mention the products they sell are rarely out of stock, and I never have to stand in line at a business that has 20 registers but only operates 5.  I never have to navigate aisles with rude people whom form an impassible human chain, or stop in the middle of an aisle to have a phone conversation, or deal with store displays built right in the flow of traffic.


The market landscape is changing, and instead of learning to adapt to it, you want those exterior influences that thrive at your expense to bend to your will.  This seems to me to be the uninspired approach to solving the problem.


The delusion that you could ever force someone to pay your state tax on a good purchased elsewhere is ridiculous!  The law works on the honor system, and that’s why it will not work at all.  Not that there aren’t honest people in this state.  I just can’t picture how an individual’s purchases could be monitored without severely limiting their freedoms.  Does the state expect its residents to retain receipts for everything purchased in and out of state in perpetuity on the off chance that some kind of Gestapo auditor will come knocking on their door?  I mean, if I bought a TV 3 years ago, but no longer have a receipt, who’s to prevent such an auditor from claiming that item was purchased yesterday and that I never paid taxes on it?  When one talks of slippery slopes, this is what they’re referring to.


These days it is possible to buy anything from bubble gum to a car off the internet.  For the myriad of pricy items it makes sense for the state to enforce it’s Use Tax., but realistically speaking, what your implying is that Oklahoman’s must save receipts for any arbitrary purchase made over the internet and report them on their taxes.  I’m sorry to be the bearer of bad news, but that’s just not going to happen.   Enforcing the use tax law would require a level of big brother government that would make even the most liberal of liberals tremble in fear. 


I didn’t always live in Oklahoma, most of my life I lived in Pennsylvania.  In that state all clothing and non-prepared food is tax free.  And that caused an influx of people from different states, and even Canada.  So, as opposed to trying to make these out of state retailers operate on your terms, why not change the terms by which Oklahoma retailers operate so they can thrive in what needs to be a competitive market?


I won’t sugar coat it, I buy a lot of things online.  I do this because online stores offer me more bang for my buck.  This is the reason they are doing so well; it has less to do with taxes, it has everything to do with what it costs just to survive these days.  Where is my incentive to drive my car all over OKC to locate a specialty product that I could find online with 5 minutes worth of searching?  I don’t have to waste my gas, my time, cause wear on my vehicle, and I’ll avoid any possible altercations with traffic and people in the process.  The fact of the matter is, even if you collected taxes on the goods I tend to buy online, it’s still a huge benefit to me to shop online.  You’d get your taxes, but the local retailers you’re trying to support would still lose!  This is where the Marketplace Equality Act will only help the municipalities but do almost nothing for the businesses.


I’ve never had a customer service problem with Amazon.com, but I have had countless problems with local merchants.  I’d rather do business with someone who doesn’t judge me based on my appearance and treat me rude or kind based on their 1 second assessment of my value as a customer.  Customer Service is where your local retailers can shine, if they don’t want to offer good customer service then it’s their loss.


In the documentary “The Greatest Movie Ever Sold,” filmmaker Morgan Spurlock went to São Paulo; a city that has done away with outdoor advertising.  The people he encounters stress that without that advertising the natural beauty of the city becomes more apparent.  And those running the shops admit that now they rely on word of mouth to survive, this ultimately means that the customer is treated with more regard than they had been previously.  Its areas like this that our local merchants can thrive, but for the most part never aspire to, and that is why they’ll fail.


When you create a means by which I can go online; locate exactly what I want within Oklahoma’s state boundaries, shop competitively between OK retailers, and have it shipped to my door at a negligible expense, I’ll have no problem paying the tax and supporting Oklahoma business.  But until you can facilitate the customers need not to be hassled with lines, traffic, and poor customer service, don’t expect that passing the “Marketplace Equality Act” is going to save any local business or jobs.  


I hate to sound so cynical about that, especially since taxes need to be collected to continue a number of social services we’ve come to rely on.  But what you are effectively saying is that instead of retailers being innovative and thinking outside of the box with regard to keeping their customers, it’s just easier to remove or limit the alternatives, so their customers don’t have any other options.  Seems like dirty pool to me, but I suppose from your perspective online retailers are the ones playing dirty.

 

12.27.2011 at 07:05 Reply

"The weather is turning chilly, the mall parking lots are full, and one might wonder, “Where is the recession?” As full as the parking lots may be, however, there are many choosing to stay in from the cold and, for convenience, shop from their computers."

Where are these online shoppers supposed to go as an alternative if the mall parking lots are full?


"Cyber Monday 2011 was the largest online shopping day in history with $1.25 billion spent. While that doesn’t sound so bad for our national economy, it has a huge, negative impact on businesses and municipalities in Oklahoma. ... That tax is remitted so rarely by the consumer that some estimate Oklahoma municipalities are losing up to $225 million per year in tax revenue."

Does the math hold up? To get to $225 million, it presumes that ALL online shopping is done without the Seller collecting ANY sales taxes. We know this isn't true because online retailers that also have a physical (brick and mortar) presence in Oklahoma are required to collect the sales tax (Wal-mart, Target, Best Buy, Sears etc etc etc)

It also presumes that the consumer is not paying the Use Tax at the end of the year (no longer possible unless 100% of Oklahoma tax filers are lying tax cheats and not remitting the tax, see below).


'Tax-free online shopping places the burden of paying that tax on the customer, who is generally unaware that this “use” tax must be claimed and paid on their yearly tax return.

That tax is remitted so rarely by the consumer that some estimate Oklahoma municipalities are losing up to $225 million per year in tax revenue."

This use to be the case for two main reasons:

  • Must didn't realize that it applied to individuals but rather to businesses that made out of state purchases.
  • There wasn't a place on the typical individual income tax form to report it (required using the long form or special schedules). This was rectified by the State a few years ago when they eliminated the "EZ" and "short form" and added it to the regular form that must everyone now uses.


That leaves the tax filer with a few options....

  • Correctly report that no non-taxed, out of state purchases were made or lie about it and say you didn't when you did.
  • Keep records of all of those online purchases and remit the tax due


But wait you say, I don't have the records...never fear. The State came up with a handy-dandy formula based on your Federal adjusted gross income and you can use that calculation to remit the tax owed. I tried both methods and found that the actual amount owed was about half of the amount in the formula. If folks are not keeping records, the State and Municipalities are getting MORE than what they are due.

So if municipalities think they are being shorted in any way, they need to talk to the State that forwards those taxes to them.

 

 
 
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