Would Ohio do better
by first implementing a sales tax on online out-of-state sales instead of expanding the in-state sales taxes to cover services?
It's a thought some are asking and we are, too.
As shopping has moved online, brick-and-mortar shops in some cases have been reduced to virtual showrooms. Customers view products artfully displayed in stores and then go online to escape the sales tax.
It is estimated that tax revenues lost annually to online sales exceed $11 billion nationally. In 2011, the University of Cincinnati released the results of a study that estimated Ohio's loss by not collecting sales taxes on online sales exceeded $200 million annually. The study also indicated that taxing online sales would create 11,0000 new jobs in retailing in Ohio because the playing field of in-state retailers versus online retailing would be a fairer one.
For sure, not applying a sales tax on out-of-state online sales puts bricks and mortar stores, those we all refer to as Main Street, at a competitive disadvantage.
Because the Interstate Commerce Clause forbids state tariffs, taxing businesses located outside the state is an unclear proposition and most states have limited out-of-state taxation to those companies that maintain some kind of bricks and mortar facilities, usually a warehouse or distribution center, in state.
In recent years, however, bricks and mortar retailers, feeling they are operating at a competitive disadvantage, have been pushing a Marketplace Fairness Act at the federal level that is gaining steam. Amazon, likely to emerge the nation's largest retailer surpassing even Walmart, is now supporting such federal legislation while eBay remains opposed to it.
Regardless of the Act's outcome, Ohio should be scrutinizing possible opportunities to levy its sales tax on those who sell products online to those of us who live in the state. Our neighbor, Indiana, is scheduled to apply such a tax starting January 2014.
Ohio should be looking at such opportunities, too. Doing so might produce enough revenue to enable Gov. John Kasich to reduce the state income tax, his pursued goal, and still keep the level of public services high.