Local businesses refuse sales tax loophole

Not just a matter of morality, local businesses explain why they won’t join online retailers in order to skirt around paying sales tax

By Gabe House, Correspondent

Local businesses and the Greater Springfield Chamber of Commerce (GSCC) are seeking a level playing field with online retail giants such as Overstock.com and Amazon.com over proper sales tax collection and remittance.

The average Illinois consumer rejoices in not paying sales tax through online storefronts belonging to Amazon and others of similar ilk. But that sales tax doesn’t just vanish; it’s still waiting to be paid, and when Amazon doesn’t directly collect it, the responsibility falls on the consumer to self-report it.

Illinois retailers, meanwhile, are legally obligated to collect sales tax from their customers upfront at the time of purchase. This occurs regardless of where the transaction takes place, whether it be in a brick-and-mortar store or through an Illinois business’s website.

As a realtor would say, it all comes down to location, location, location.

“Since I have a physical presence in Illinois I am legally forced to be the state’s sales tax collection agent, and if I don’t do it right they penalize me,” said Zach Hoffman, owner of Wiley Office Furniture. “The theory is as an Illinois resident, if you buy something from a catalog or travel to Missouri or buy something on Amazon, you’re supposed to voluntarily remit 6.25 percent sales tax.”

Hoffman is referring to “use tax,” which an Illinois resident is supposed to pay on any purchase made online or out-of-state. Online retailers not based in Illinois have a tendency not to make this widely known, and despite the Illinois Department of Revenue’s (IDOR) continued attempts to educate the general public, relatively few people pay that tax. In fact, a recent IDOR study concluded that the Illinois general fund is losing an estimated $153 million annually due to unreported use tax.

Zach Hoffman, owner of Wiley Office Furniture

But Hoffman and his fellow business owners don’t have the freedom of online retailers to place tax-paying responsibility on consumers’ shoulders.

“They can throw up their hands and say it’s the person’s own responsibility to remit the proper tax,” said Hoffman, referring to Amazon and Overstock, among others. “As a brick-and-mortar business person I would love to have the lack of obligation of the online competitor, if I could say to the customers that come into my business, ‘Here, sign this form that says you’re going to swear to remit your sales tax, and I’m not responsible for collecting it.’”

The result is an apparent disparity in which online-only retailers seem to gain an edge in terms of sales since they lack a physical presence. This makes little sense to Hoffman and many others. Most towns, Hoffman explains, want businesses in their communities. They pay property taxes, employ people and buy locally.

One seeming solution might be to move the business to an online-only model. However, Rob Karr, senior vice president of the Illinois Retail Merchants Association said that the change would just present new problems. Uprooting and moving to a new state for the sake of a sales tax loophole would be far too costly for many Illinois retailers.

Also, despite online retail’s exponential growth – 15 to 20 percent every year, according to Karr – many customers still prefer a traditional shopping experience. “There are still a lot of people who like to go to a store to feel, touch and see the merchandise,” Karr said. “You don’t want to give up that customer base.”

Additionally, legislation signed by Illinois governor, Pat Quinn early last year requiring Internet retailers to collect sales tax if they utilize affiliate sellers in the state did little to turn the tide.

“For those like Overstock or Amazon it created a virtual physical presence,” Karr said. “It drove Overstock and Amazon to divorce their affiliates which shows just how loyal they are to their own business partners.”

Online retail will undoubtedly continue to grow, and Hoffman and the GSCC will likely remain locked in an effort to compete fairly and legally within the state’s confines. It’s an evolving struggle. But, as Karr said, if somebody could come up with a better way of doing things, they would have by now. Hoffman just wants everyone to play by the same rules.

“If sales taxes are an important part of the revenue stream that make us a civilized state and society and pay for things, then everybody should pay.”