Online tax bad for commerce

The Detroit News

In the name of fairness, the Michigan Legislature passed a bill last week that would essentially impose a new tax on Michigan consumers who buy from online retailers or other out-of-state companies. Gov. Rick Snyder says he will sign the legislation.

Big box brick-and-mortar retailers are trying to level the playing field by forcing out-of-state retailers who compete for their business to become Michigan tax collectors.

The “Michigan Main Street Fairness Act” requires out-of-state stores to charge the 6 percent Michigan sales tax to customers if the store has some sort of a “nexus” to the state. That could mean anything from a warehouse or distribution center to working with an independent contractor in Michigan, and even advertisements or casual mentions of products from outsiders in the state of Michigan may count.

If the bills were more moderate in their approach, they might be palatable. But the bill that’s been passed is too broad and far-reaching, and stands to benefit just one kind of retailer at the expense of millions of dollars to Michigan consumers.

Brick-and-mortar retailers argue customers peruse their products in stores, but go online to actually buy the goods for a cheaper price. They say this steals tax revenue from Michigan and profits from them.

The real issue, however, is that there are two different business models.

Brick-and-mortar companies have to collect sales taxes on their goods, but offer customers products they can touch and see first, and immediately take home.

Online companies like Amazon.com or Overstock.com can often charge lower prices and don’t have to charge sales tax, but they don’t provide a physical store for customers, and any purchases have a shipping delay before they reach the customer.

Customers who buy online also pay shipping and handling fees that can add up to as much or more as traditional sales tax at a brick-and-mortar stores. The playing field is as level as it can be.

This legislation will discourage economic development by discouraging any large out-of-state company with online sales to avoid a physical investment in Michigan.

This bill, aimed at raising money to offset the loss of the sales tax on fuel, should be close followed and adjusted if it ends up hurting overall commerce.