Closing Internet Sales Tax Loophole Opens Opportunities for Owners, Tenants

A new bill that would require online retailers to collect and remit state sales taxes has been introduced by U.S. Reps. Jason Chaffetz, R-Utah, and Steve Womack, R-Ark. The Remote Transactions Parity Act (H.R. 2775) follows Womack’s Marketplace Fairness Act, which passed in the Senate last year but stalled in the House.

Currently, online retailers have to collect and remit sales taxes only in those states where they have a physical presence. So, for instance, if an online retailer has a warehouse in a particular state, it needs to collect sales taxes there. Brick-and-mortar retailers say this puts them at a huge disadvantage in those states where so-called e-tailers don’t have to charge and turn in sales taxes.

Landlords also lose out when tenants that are at this disadvantage struggle, especially when percentage rent amounts, meant to be an extra source of income for landlords, are diminished. The International Council of Shopping Centers (ICSC) and other critics of the status quo, which allows online retailers to charge less than their brick-and-mortar counterparts, say that the system is blatantly unfair. ICSC has said it will do everything it can to support the bill.

ICSC and other organizations have promoted a series of bills to level the playing field in years past. H.R. 2775 would provide that smaller businesses—those with remote sales grossing below $10 million the first year after the law is passed, under $5 million the second year, and under $1 million the third year—would be exempt from collecting and paying state sales taxes.

Industry experts also noted that states are also being affected under the current system. Following a survey conducted in 2012, the National Conference of State Legislatures noted that states lost $23.3 billion that year from uncollected sales taxes, money they note is sorely needed to pay for education, infrastructure, and other programs.