A Taxing Problem: How E-Commerce is Threatening Our Local Economies

Dana Eness, Executive Director, StayLocal! and The Urban Conservancy


As citizens, we enjoy contributing to our community’s well-being. While some of us do so by volunteering for a local non profit or coaching a Little League team, we all contribute through the taxes we pay. Our local business owners are especially important to our community’s economic health. A well-educated labor pool, low crime, quality schools, and financially stable families are dividends the public derives from the contributions local businesses make with the jobs they provide, the philanthropic work they do, the property taxes they pay, and the payroll and sales taxes they collect. In fact, municipalities rely heavily on the tax dollars their business community provides. But often those projections fall short, and when they do, dollars allocated to city services like public safety and street maintenance get slashed.

Why do sales tax projections regularly miss the mark? One variable often overlooked by city governments is one that business owners in sectors like electronics and book sales are well aware of: the accelerating popularity of e-commerce, which has seen double-digit quarterly growth in the US since 2010. “Cyber Monday” is the Monday after Thanksgiving, and in recent years has signaled the beginning of the online holiday spending spree. In 2012, Cyber Monday spending in the US soared to $1.46 billion, making it the heaviest online spending day in history, and also put it on track to be the heaviest spending day of the holiday season for the third consecutive year.

Since many large e-commerce retailers skirt sales tax collection, e-commerce represents a considerable depletion of needed–and anticipated–revenue from communities. Fortunately, municipalities and brick and-mortar stores have a number of tools available to keep revenue from being siphoned from the local economy. The best strategies to increase sales tax revenue involve coordinated efforts between independent businesses and their local government.

One strategy is to pass legislation requiring large e-commerce retailers to collect and remit sales taxes. Since 2008, statewide coalitions of business and consumer interests in ten states including California, Arkansas, and North Carolina have resulted in the passage of “e-fairness” enforcement legislation. Such legislation is often misconstrued as a new tax. In fact, it enforces collection of existing sales tax due states and municipalities by online mega-retailers as brick-and-mortars are required to do. Educating consumers about the connection between where they spend their dollars and the direct benefits to their community’s health and safety is key to changing consumer habits. City governments can work closely with their local Chambers of Commerce, merchants’ associations and independent business alliances to communicate a unified message and create a strong “buy local” culture.

Independent retailers and their local governments have a mutual interest in a thriving local economy that generates a solid tax base to adequately fund community services. By working together, they can make sure that wealth is generated and retained locally.

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