Letting online sellers avoid charging sales tax "automatically puts us at a disadvantage of 7 to 8 percent, especially on the kinds of products that we sell," said Jeff Blumenthal, president of B&B Appliance in Euclid and Middleburg Heights.
CLEVELAND, Ohio -- The closer it gets to Christmas, the more disappointed Ohio retailers are by Congress' apparent reluctance to pass the Marketplace Fairness Act stores say they need to compete with online sellers.
View full sizeMichael Ziegenhagen, owner of Playmatters Toys, said Ohio retailers are frustrated by Congress' lack of enthusiasm for passing the Marketplace Fairness Act that would help local stores. Michael Ziegenhagen, president of Playmatters Toys stores in Pepper Pike, Solon, Mentor, and Cleveland's Shaker Square neighborhood, is frustrated by "the fact that we're being asked to collect and pay sales tax" on purchases while Internet competitors like Amazon.com don't. "It's a $1 billion exception on online sales," that hurts small businesses, he said.
When brick-and-mortar businesses close their doors, and state lawmakers wonder why the sales tax revenues they used to get from those stores have dried up, he wonders if they will remember "turning a blind eye to our situation."
Jeff Blumenthal, president of B&B Appliance stores in Euclid and Middleburg Heights, said enabling online retailers to avoid charging state and local sales tax "has been a bone of contention for many, many years. It automatically puts us at a disadvantage of 7 to 8 percent, especially on the kinds of products that we sell."
View full sizeMary Boyle of B&B Appliance, opens a front-loading, energy-efficient washing machine in this Plain Dealer file photo. Internet retailers that don't have to collect sales tax have an unfair advantage over brick-and-mortar stores that don't have a choice about paying taxes, business owners say. The final price on big-ticket items like refrigerators, televisions, ranges and washing machines can make a huge difference in whether someone buys something from his store or from an Internet competitor who doesn't have to factor in that sales tax.
The exception dates to a 1992 Supreme Court decision, Quill Corp. v. North Dakota, created in response to the difficulties of complying with 7,600 local taxing districts in 45 states. But with the growth of Internet and mobile sales now outpacing those at brick-and-mortar stores, opponents say reversing Quill is long overdue.
The Marketplace Fairness Act, seen as a way to eliminate that exception, was widely supported by retailers large and small, as well as retail trade groups, and shopping center developers like DDR Corp.
They were optimistic when it was introduced in 2013, and again when it was approved by the Senate in a 67 to 29 vote (including both Ohio senators). But after more than 18 months awaiting House approval, the chances of its passage appear slim as members of Congress head home for the holidays.
View full sizeAttorney Michael Cullers of Squire Patton Boggs Michael Cullers, a partner in Squire Patton Boggs' Cleveland office who specializes in state and local taxes and public finance tax matters, said Speaker of the House John Boehner said the proposal would not be addressed before Congress adjourned.
"Groups that are opposed to the bill have mischaracterized it as creating a new tax," instead of acknowledging that it collects money that is already due but that consumers aren't paying. "A lot of people don't realize that it's a tax that's always been in existence," Cullers said.
"People aren't aware of the fact that if they bought something online," they still owe the sales tax on that purchase to the State of Ohio, he said. Instead, they wonder why they should pay taxes on something they're used to getting "tax-free."
University of Cincinnati researchers said last month that Ohio consumers will spend $1 billion on Internet purchases this holiday season from sites such as Amazon.com and eBay.com that don't charge or collect state and local sales tax, costing the state about $70 million in lost sales tax revenue.
Not only that, but consumers buying from Internet-only sites cost Ohio brick-and-mortar retailers like Macy's, Jo-Ann Fabrics & Crafts, and American Greetings an estimated $200 million in lost retail sales in November and December.
Shoppers are supposed to keep track of their online purchases, calculate how much sales tax they owe, and pay that amount on their Ohio income tax forms, but most consumers don't.
A poll of Ohioans released in September found that 69 percent of them would prefer to have those taxes collected when they check out, rather than be responsible for paying them later.
"Everybody wants to get the best price," Blumenthal said, and retailers have some wiggle room to haggle to make a sale.
"But sales tax is something we are unable to react to," and don't have the power to waive. Jeff and his brother, Marc, are the third generation of their family to run the appliance business.
Consumers need to ask themselves, "Are they going to report it [as something they owe taxes on], or do they just look at it as an additional savings?" Blumenthal said. "They have to make a determination whether that potential savings is worth the questions or problems that might come up down the line with an out-of-state company, especially with a large purchase."
Follow @janetcho