I like a bargain as much as the next guy, and over the years I’ve probably saved lot of money by shopping on Amazon, which until recently did not collect sales tax in my home state of California. Now it does, and I am happy to pay it.
I’m neither rich nor crazy, so why am I happy to pay more? California is in a deep fiscal hole, and if the state can’t raise more revenue, critical services like education, police protection, and transportation, all of which have already been slashed, will be cut even more. And of course, the same thing is happening all over the country.
Uncollected use taxes (a use tax is pretty much the equivalent of a sales tax) for the six-year period ending in 2012 will range from $52 billion to $56 billion nationally, according to a study by economists at the University of Tennessee. New York City alone will lose at least $390.6 million in 2012; Chicago $229 million, they predict. That study is a few years old, but I’d surprised if the numbers hadn’t actually gotten larger, since online sales are growing at a nearly exponential rate.
There’s another issue as well. Brick-and-mortar stores have a hard time competing when forced to collect a sales tax of 8.5 percent, the current rate in San Francisco. As I said, I like a bargain, but I also like it when my neighborhood bookstore stays in business and continues to employ a few of my neighbors.
Origins of the Free Ride
Amazon and other online retailers were exempted from sales tax requirements years ago, when the Internet was still in its infancy. The Web needed a chance to grow, and the sales tax holiday was one way to get a foot in the door. In principle, the exemption wasn’t different from the tax breaks that young industries such as solar and wind power are granted to encourage their growth.
But you can no longer argue that the Web is about to die in its crib. Far from it. In fact, it’s the analog world of shops and publishers that is truly suffering. I don’t think Amazon should be penalized for its success, but it should play by the same rules as everybody else.
The giant e-tailer fought the idea for years, even threatening to pull the plug on its California affiliates. Amazon last year struck a deal with Gov. Jerry Brown. The company promised to open two 1-million-square-foot distribution centers in Northern and Southern California and start charging sales tax as of last Saturday.
Amazon already collects sales tax in New York, Pennsylvania and Texas. It will begin adding the tax in New Jersey in July of next year, Virginia in September of 2013, and states including Indiana and Nevada in 2014.
OK. Maybe I’m exaggerating just a tad. I’m not that happy to spend more money on items purchased on Amazon. But it really is important that states and cities get back on their feet, and that we give small businesses a break. If that means we all have to spend a bit more, so be it.
San Francisco journalist Bill Snyder writes frequently about business and technology. His work appears regularly in CIO.com and the publications of Stanford's Graduate School of Business and the Haas School of Business at the University of California at Berkeley. He welcomes your comments and suggestions.