By Bill Derby, Publisher
Today marks the start of the Johnson City News & Neighbor’s 21st year of publishing the good news of our communities. Thank you to our readers and advertisers for their support over the past two decades. We appreciate it.
The logo you see, “Spend it here. Keep it here. Support Your Local Community. Shop Local” is a focus and awareness we designed to help keep our sales tax dollars local, citizens employed and services operating. I just finished reading two in-depth articles and opinion of what is going to happen if we continue shopping on the Internet with companies that don’t pay state sales tax. Most of us buy online. It’s easy and sometimes cheaper and you can avoid paying sales tax. But, there is a dangerous undertone awaiting us, and even more so in the future.
Yesterday, April 17, the Supreme Court re-visited their 1992 decision (Quill Corp. v. North Dakota) that prevents states from effectively collecting sales and use taxes that are owed on purchases by state residents from remote sellers, or out–of-state online sellers. On-line sellers with locations, warehouses or offices in a state are required to capture sales tax revenue for that state.
Dr. William Fox, University of Tennessee economics professor, said, “In the 1992 decision e-commerce was a tiny segment of the U.S. economy, especially at the retail level. There were no major on-line e-commerce retailers. Now it has changed. From 1992 to 2015, e-commerce sales were over $5.7 trillion and climbing with most untaxed. No one likes to pay tax but if we don’t we will be challenged how to pay for our school systems, police, fire departments and more.”
Today, more than ever before, you and I need to be aware of how a simple online purchase will affect our local businesses but, more importantly, the negative impact it will play on our daily lives and community. Local and state sales tax has been eroding faster and faster over the past few years due to the inability to claim sales tax revenue from online sales. (Quill 1992)
Johnson City leaders are now wrestling with a new budget. According to Janet Jennings, Finance Director of Johnson City, “Local sales tax is the second highest source of revenue for the City, comprising almost 25% of our General Fund Budget.” Ms. Jennings said it has been difficult for the state to track lost sales tax revenue for online sales.
As an example, Amazon does now collect sales tax but still not on its third party sales, which make up a large segment of its total sales. In Tennessee, without getting into a complicated explanation, revenue distribution of online sales tax, mostly from Amazon, is distributed to counties and municipalities based on the total population of those areas. In other words, Memphis gets more tax dollars than Johnson City. Nashville gets more tax dollars than Knoxville and so on.
The impact of “Shopping Locally’ can’t be over emphasized. Look at what has happened locally within the past few months. Toy’s R Us is closing, HH Gregg closed, and a couple of Mall stores closed their doors. JC Penney, Sears and others are in difficult times. Drive around and see numerous empty buildings where our citizens used to work.
In an article in Nov. 2017, by William F. Fox, Chancellor’s Professor, Boyd Professor of Business, professor of economics, and director of the Boyd Center for Business and Economic Research at the University of Tennessee, Knoxville stated, “Inability to collect sales tax on remote sales still harms the economy.”
Professor Fox adds, “State and local governments deliver almost all public services that affect people’s daily lives and provide the basis for a strong economy. State and local governments produce or finance much of K-12 and public higher education; build interstate and state highways and local roads; provide intracity transportation; provide or regulate utility services, including water, sewer, electricity, solid waste removal, and others; and deliver safety service such as police and fire protection and emergency preparedness. State and local governments also deliver or assist numerous other significant community services and are thus a major source of economic infrastructure.
“State and local governments generally balance their budgets and must spend less as a result of the sales tax revenue losses, which combined represent more than 4 percent of expected sales tax revenue in the average state in 2015. It is much more profound in states that are heavily dependent on the sales tax.”
Fox used Tennessee as an example, “An example from one state is instructive. A study by Bruce, Fox, and Luna (2009) estimated the state and local sales tax loss in Tennessee attributable to e-commerce at $410 million. Tennessee is a relatively small state, but the size of that loss reflects the fact that Tennessee has no personal income tax and instead relies very heavily on its sales tax revenue to fund state and local services. The revenue loss associated with e-commerce alone is several percentage points of the entire state budget.”
The recent teacher strikes in West Virginia and Oklahoma might be examples of what might happen when states’ sales tax revenues drop because of e-commerce and the ‘Quill’ decision.
When you get the chance, read both articles to understand the serious road that lies ahead. It’s time to re-consider how we can co-exist with our newfound technology that works for all of us.
1. State Tax Notes, November 6, 2017: ‘Inability to Collect Sales Tax on Remote Sales Still Harms the Economy’ by William F. Fox
2. March 2018 Edition Esquire Magazine: Opinion Column by Scott Galloway. ‘The Case for Breaking Up Amazon, Apple, Facebook and Google.’ This article is more of a socio-economic look at what has happened in our big-tech world and how technology has changed our lives for the good and bad.
Until the Supreme Court or Congress decides on how to handle this challenge be sure to shop local and help keep your neighbors employed.