Commentary: In fairness, Congress must require collection of out-of-state sales taxes

In California and across the country, businesses create jobs, enrich communities and power America’s economy. Unfortunately, when it comes to ensuring that all businesses are treated fairly and equally under the law, Congress has checked out.

It’s past time for Washington to close a longstanding loophole regarding the application of sales tax laws that undermines local brick-and-mortar businesses.

I started my business in 1986 and have been blessed with success by dint of hard work, talented colleagues and loyal customers. That’s the tried-and-true success formula for people who pursue the dream of owning their own business.

Unfortunately, the road to success is made unnecessarily treacherous because of a decades-old legal quirk that puts local, independent businesses at a disadvantage compared with their out-of-state, online competitors. The law requires retail businesses to collect sales tax on customer purchases, but out-of-state online sellers aren’t burdened with the same requirement.

This loophole was created by a 1992 federal court decision barring states from requiring that retailers collect sales tax on sales to residents of another state, saying such a requirement was too cumbersome. That may have been true in 1992, before the advent of the Internet and e-commerce, but not today.

It is unfair to arbitrarily require local, independent retailers to charge sales tax while exempting out-of-state online sellers. Margins for local businesses are small, and every dollar in sales counts. When customers can avoid paying 8% sales tax by buying the same or similar products from an out-of-state online seller, many understandably will do so. This unequal treatment by government gives out-of-state, online sellers a huge competitive advantage by artificially making local businesses the more expensive choice.

The solution is enacting what is known as federal e-fairness legislation that would supersede the 1992 court decision and force local retailers and out-of-state online sellers to follow the same rules when it comes to sales tax. States would simplify their tax collecting process and provide out-of-state online sellers with free software to calculate, collect and remit sales tax. Sen. Mike Enzi of Wyoming and Rep. Jason Chaffetz of Utah, both Republicans, are each sponsoring bipartisan e-fairness legislation this year.

This would not mean a new tax or a tax increase. Enacting e-fairness legislation would broaden the sales tax base and enable states to lower rates. Already, about a dozen states have passed laws or proposed measures to lower more harmful tax rates, like income or property taxes, if Congress passes national e-fairness legislation.

Congress has debated this issue more than 30 times in the past 22 years but taken no action. The benefits of an open marketplace — free from the distortions of arbitrary government interference — would reverberate throughout communities nationwide.

America’s independent business owners are strong and resilient. We have to be in order to compete and thrive. But when our own government continues outdated policies that amount to unfair tax discrimination against local, independent small businesses, that undermines job creation, weakens our economy and hurts communities. Unless Congress acts to pass e-fairness legislation, local businesses will continue to suffer and communities will continue to see job opportunities dwindle.

San Clemente resident MARIO RODRIGUEZ is president and CEO of Jonathan Grey & Associates and chairman of the Hispanic 100, which works to advance free-enterprise principles within the Hispanic community through advocacy and educational activities.