First, the good news. The U.S. Commerce Department reports that retail sales rose 0.5% in May, marking three consecutive months after a roller coaster of a year for consumer spending.
Unfortunately for local marketplaces, the gains in spending were led by online spending.
The time-saving convenience, near limitless selection, cheap or free shipping and absence of local taxes make online shopping a compelling economic choice for consumers over patronizing hometown merchants.
The world’s largest multi-vendor marketplace platforms — Amazon and e-bay — have dramatically and forever transformed the landscapes of America’s main streets and malls.
The economic and social impacts of this phenomenon are manifested in many ways in our communities. Empty big box stores and vacant spaces in malls across the land have altered the social culture, caused job losses and left gaping holes in municipal budgets as local retail tax revenues follow sales volume.
Though many quintessential main street staples, such as clothing, shoe and department stores, have disappeared, other local businesses have thrived and new retail businesses have cropped up. Cellphone companies, local e-commerce storefronts, exercise facilities and electronic product vendors are examples of businesses that have in-filled the retail void.
Some retail outlets have thrived in the new economy. The offerings of big box stores such as Home Depot and Menard’s can’t be replicated in the online marketplace. Ace Hardware is an example of a venerable, locally owned business that the community strongly supports. If an item or expertise can’t be found at the big home improvement stores, the staff will likely recommend Ace.
Because Amazon and other online marketplaces have been able to sidestep local retail taxes, local merchants were placed at a disadvantage.
That advantage ended Jan. 1 of this year, as Nebraska joined 31 other states with laws requiring e-commerce sellers to collect and remit sales tax. Nebraska has had a law on the books for some time requiring consumers to self-report online purchases and pay sale taxes, but few complied.
The state’s new law requires remote sellers with annual gross sales of $100,000 or more than 200 separate transactions to collect state sales taxes.
Tax Commissioner Tony Fulton reported that the last projection of state revenues included money anticipated from online sales taxes to account for $30 million to $40 million of the total.
The state’s online tax is a step in the right direction, but more work is needed to effectively establish protocols for the collection and distribution of online sales tax at the local level.
Nebraska is a destination-based sales tax state. This means that a business located in Nebraska or an out-of-state business meeting the sales volume requirement would charge sales tax at the rate of the purchaser’s ship-to location. For Grand Island that rate would be the state tax of 5.5% plus the 2% local tax (7.5% total).
To truly make the remote sales tax fair and equitable for local merchants and municipalities, local taxes must be collected by the online marketplace seller and that revenue must be remitted to the local taxing authority.