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Online tax only hurts small businesses

Published: Friday, May 24, 2013 9:38 a.m. CST

(MCT) — If looking just at the surface of the issue, it would seem hard to argue with the fairness of taxing online retailers.

We certainly agree there needs to be a leveling of the playing field between behemoth Internet sellers and the mom-and-pop businesses whose profits they erode.

There remain too many questions, though, about the true impact of online shopping in that regard. Rather, the majority of online purchases would seem to be of items not readily available in the brick-and-mortar stores. If given the option, buyers surely would gravitate toward the instant gratification of taking a purchase home now rather than waiting weeks or paying exorbitant shipping and handling charges.

The “fairness” rationale given by politicians is probably just a cover for the bags of money they think such taxation would bring.

It hasn’t, and won’t.

State lawmakers relied on a 1992 U.S. Supreme Court ruling that said basically any business with a “physical presence” in a state must pay state taxes. The court named offices, warehouses and other criteria that could establish such a presence.

Then along came the Internet, and online retailers followed.

In 2011, the state decided to create its own definition of “physical presence” and require all online sellers to pay state taxes. There was even a line added to state income tax forms that asks taxpayers to self-report non-taxed items they bought online and then pony up the amount they should have paid.

Proponents touted it as salvation for everything from declines in revenues returned to cities and counties to soft sales at hometown stores. In the first six months following the tax going into effect, $3.8 million was collected. Lawmakers estimated it would bring in closer to $150 million a year.

In the process, businesses that found themselves under the new tax code simply ... left. Amazon, determined it didn’t have the time, energy or inclination to deal with the tax, jettisoned the 9,000 affiliates it had in Illinois.

The irony of the situation: It’s the smaller businesses that are being hurt. Many of the startup online companies are family businesses, too. The larger retailers, such as Amazon, are far too big to feel anything but an annoying mosquito sting from the money grab.

Now the state Supreme Court is being asked to review the law after Cook County authorities decried it unconstitutional.

We hope the court looks beyond the rhetoric and empty reasoning and questions the larger forces at play in such a quest for “fairness.”

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This editorial first appeared in The Telegraph, Alton, Ill.

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©2013 The Telegraph (Alton, Ill.)

Visit The Telegraph (Alton, Ill.) at www.thetelegraph.com

Distributed by MCT Information Services

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