There are two BIG reasons to shop locally this holiday season, rather than through the big online retailers not required to collect sales tax: (1) big online retailers pay no taxes to support our communities and (2) our local retailers are the ones most likely to financially support our fundraising efforts in our community’s schools. [Image source here. Thanks.]
How much does it cost us? For 2011 alone, the amount of taxes that should have been collected on online sales and other e-commerce totaled $200 million. That’s not chump change. Recall that Alabama voters just passed an amendment to allow the General Fund (where prisons, Medicaid and everything other than Education is paid from) to use $145 million per year for the next three years from the Alabama Trust Fund. If online retailers charged and paid taxes on our online purchases and other e-commerce activity, that bailout might not have been necessary.
Any time you purchase something online from a store that doesn’t collect and send Alabama the sales tax that is owed, you are cheating the school children of Alabama out of that revenue. You’re also cheating your local community and government services. Think schools, teachers, policemen, firemen, roads, public works, parks and the rangers that work there…..anybody and any service that receives any benefit from sales tax proceeds.
For clarity, here are the rules about who has to collect and pay sales tax in Alabama:
- If a retailer sells online but does not have a brick-and-mortar storefront in Alabama, that retailer does not have to charge or pay sales tax.
- If a retailer sells online and has a brick-and-mortar storefront in Alabama (like Best Buy, for example), that retailer does charge sales tax and pay the tax directly to the communities where their customers make purchases.
- If you buy something online and are not charged sales tax, you are required to report and pay the sales tax (called a use tax) to the appropriate authority: state, county and city.
But properly charged and paid sales taxes aren’t the only reasons to shop locally.
Our local retailers (the ones whose prices are higher than the online retailers due in part to the sometimes-10% sales tax addition) are often the same ones our school communities, PTAs, PTOs, and athletic teams ask for financial support of our fundraisers. We don’t purchase their products, choosing instead to purchase online, but yet we want them to support our schools. That logic is a bit flawed, don’t you think?
There are three ways to fix this: (1) we can stop buying online from retailers who don’t have a brick-and-mortar presence in your community; (2) pass a state law requiring the retailers themselves to send the taxes due to our state and local communities or (3) pay the sales/use tax yourself. Which way seems most likely to fix the problem?
Sidebar: The Sales Tax Component – How to Pay Up and Why It Matters
In Alabama, you are required to self-report any purchases that you make online and also remit the taxes owed on those purchases For state use tax (4% of total purchases), you can pay when you file your annual income tax forms. However, instructions on the Alabama Department of Revenue web site state that the tax is to be paid by the 20th of the month following the purchase. Which means if you shop online regularly, you might have to file as many as 36 forms (one for each month for state, county, and city taxes). Even if you only pay your Alabama use tax yearly, you should be paying county and city taxes each month.
Here is the “worksheet on page 9”:
During the 2012 Special Session, Act 2012-599 directed that 75% of remote use taxes go to the General Fund and 25% goes to the Education Trust Fund (ETF). Prior to the passage of this bill, all remote use taxes would have been funneled to the ETF. There is a provision in the Act that if a national online sales tax is eventually required, it is divided among the General Fund (50% of half the total), the ETF (25% of half the total), the city where the delivery was made (25% of total) and the county where the delivery was made (“remainder”).
Alabamians self-reported and paid $700,000 in 2011 as taxes owed on internet purchases. That’s pretty impressive, but is dwarfed by the estimate that $200 million was actually owed. There was no breakdown of state versus county versus city taxes in terms of what Alabamians self-reported.
How Much It Costs Our Communities for Us to Shop Online
Dr. Robert Robicheaux, chair of the Department of Marketing, Industrial Distribution and Economics in the UAB School of Business, authored a study published in February 2012 with all of the gory details about just how much is lost due to online sales where no taxes are collected or remitted. He estimated the loss of revenue to our state to be more than $200 million for 2011 alone. The cumulative amount through 2016 is estimated to be $1 billion.
The effects of the lost revenue don’t just affect the money that should be distributed to those departments and agencies that receive sales tax proceeds. The lack of funds also is estimated to cost Alabama 3,500 to 4,000 jobs yearly.
Robicheaux connects the dots very clearly (stay with me here; we need to understand how all of this is connected and he does a fine job doing so):
“In 2011, Alabama consumers spent more than $2 billion on retail Internet purchases. Those purchases represent more than $2 billion of sales revenue lost by Alabama-based retailers. Sales of clothing, footwear, toys, electronics, cosmetics, jewelry, sporting goods, artwork, ofﬁce equipment, supplies, pet foods and many other types of products were made by remote sellers into Alabama and those sales revenues and the related proﬁt on those were lost by Alabama retailers. That is not all that was lost, however.
The more than $2 billion in sales revenue and related proﬁt lost in 2011 is not available for Alabama businesses to hire, retain and pay Alabama workers. It is not available to invest in expanded inventory that offers more convenience and shopping efﬁciency for Alabama consumers. That $2 billion in lost revenue is not available to build new or expand local retail units that employ tradesmen and provide ﬁnancial support for their families. It is not available to fund the renting and leasing of unoccupied or under-occupied commercial buildings that would in turn help commercial real estate investors and commercial realtors across Alabama, especially in the present depressed real estate market. That lost revenue causes retail banking account balances to be lower and local and statewide advertising
expenditures to be lower. Retail owners and their employees’ incomes are lower and their spending of that income to purchase other goods and services as well as their charitable contributions are lowered.
If more workers in Alabama are unemployed because of the high volume of sales by remote sellers who lack nexus with Alabama, those workers are buying less and will also pay less in state income tax. Some will move to other states in pursuit of better economic conditions. There will be a naturally occurring set of negative economic consequences greater than the loss of $2 billion or more in Alabama retailers’ sales revenues.” (Source: “Estimates of Alabama Losses Due to e-Commerce“, pp. 15-16)
Tax year 2012 estimates are even more staggering: $270 million in lost revenues from consumer-based purchases, with another $77 million lost from business-to-business purchases.
Two federal laws have been introduced to force big online retailers to pay some form of taxes. Neither has been passed at the time of this writing. Looking for a federal fix may take a good long while. Alabama’s legislative session starts on February 5, 2013.
Some states have passed laws requiring online retailers with a “nexus” (or connection outlined in the law) to collect and pay sales tax. The online giant Amazon has agreed to collect and remit sales taxes from online purchases in 14 states, including Tennessee (2014) and South Carolina (2016).
Other states, including Georgia, have enacted legislation to require “affiliates” to collect and pay sales tax. An affiliate is a company who has any type of marketing relationship (e.g., “click-through” ads or coupons) with a state-based organization. That affiliation serves as the “nexus” that the Supreme Court in 1992 ruled had to exist in order for states to require collection and payment of sales taxes from remote (online, mail-order catalog, etc.) sellers.
Until, or if, legislation is passed requiring online retailers to pay sales tax, you should keep track of your purchases and self-report and pay what you owe. Again, when you don’t, you are withholding money that is rightfully owed to our school community and the agencies that serve the people of our state. The choice is yours.
If you’re interested, here’s a look at all 50 states’ rules on taxing internet sales.
The Local Retailers Are the Ones Supporting Our Local Schools
It amazes me that we are so quick to go to the big-box retailers to buy our bargain and discount merchandise, yet when we go to raise money for our schools, we often go to the smaller local businesses to ask for their help and support. Certainly, the big-box stores like Walmart do give away a lot of their money to their local communities, but what images come to mind when you think of sponsorships of local sports teams? Sponsorships by local businesses? Can’t you picture that plaque on the wall with the picture of the softball or football team? I don’t see those plaques in the big-box stores.
I came across an op-ed a few months ago in the local newspaper that offered this view of the importance of supporting local businesses to local communities:
“Leveling the playing field between online merchants and the traditional shops would help states and localities in more ways than simply increasing sales tax revenues. Earthbound retailers are essential players in the local economy and culture. They pay real estate taxes. They hire locals, who then pay taxes. Very often they sponsor youth sports teams and buy ads in the high school yearbook.” – Froma Harrop, “If You Like Local Government…”, July 2012.
Regardless of your political persuasion (in case you have a pre-formed opinion of Ms. Harrop and her political leanings), those words are simple and true.
Go look in your local school yearbook. Look at the ads. Ask yourself when was the last time you shopped with that retailer. Look in your school’s sports program, sometimes called a Media Guide. Whose ads are in there? Amazon? Ebay? Overstock.com? Probably not. Probably they are your local sporting goods store, your local drug store, local restaurants….see the connection?
We should patronize our local retailers, not just because they pay sales taxes that support our teachers, children and schools through those sales taxes, but also because they support our schools in a very real way throughout the year. They are there for us when we ask for their support. We should certainly return the favor and shop with them whenever possible.
“But It Costs More When I Buy Locally”
Uh, yes. It very well may cost more. But the increase in cost may be simply a reflection of the cost of running a brick-and-mortar business. Those retailers pay local property taxes as well. Maybe your community has an occupational tax that increases the cost of having employees. That additional money that you pay will likely be put back into your community in one way or the other. So the additional money that you are paying is supporting your local community. Yes, it may be coming directly out of your pocket rather than through some anonymous tax mechanism at the state level.
If we, the members of our school community, are not willing to spend our money to support our own communities, who can we expect to do so? You can take pride in knowing that you are helping to support your local community.
Surely this was the idea behind Small Business Saturday, not only to support small businesses, but to encourage all of us, at least one day each year, to shop locally to keep our money in our local communities.
The Benefits of Shopping Locally
So what are the benefits? Increased sales tax revenues, for sure.
There is another benefit, though. One that’s tougher to quantify. The result of our doing our holiday shopping with our local retailers helps form partnerships among our school community. Those partnerships strengthen our schools and our community life.
So before you type “www” on your computer, take the time to consider if there is a local retailer that might have what you’re looking for in stock. Consider setting aside part of your budget this holiday season for local retailers. And make a New Year’s resolution to shop locally whenever possible in 2013. Our communities will be all the better for it.
Please share this post with your school community. Please comment here or on our facebook page. You can pin it to your Pinterest page, or Tweet it to your followers. [Here’s the short link: http://ALABAMASCHOOLCONNECTION.ORG/?p=1289]. The buttons are at the end of this post.
You are free to reprint it without permission. Attribution to the Alabama School Connection is appreciated.