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Kentucky Retailers: Extend Sales Tax To Online Purchases

Josh James

A group of Kentucky retailers are calling on the state’s federal delegation to close what they call a tax loophole that exempts out-of-state businesses from collecting sales tax. But the proposal is hardly a new one.

In 1992, the U.S. Supreme Court decided that businesses lacking a physical presence in a state aren’t required to charge sales tax, but that was before a little thing called the internet took off.

Fast forward to today and bricks-and-mortar sellers have been arguing for years the rule is outdated and unfair, forcing them to choose between markdowns and lost sales. Kevin Cranley, president of Willis Music, says now customers often sample products in-store and whip out their smartphones when it comes time to purchase the item to avoid Kentucky’s 6 percent sales tax – a habit so common it now has a name, “showrooming.”

"We're pretty passionate about music at Willis and we just want the opportunity to help them," he says, recalling a customer who spent hours chatting with knowledgeable staff about a $2,000 keyboard only to buy online. "We don't blame them. They're looking for the best price and if the sales tax is the issue, that's what they're going to do, but we just want the level playing field."

In an environment where wage growth is sluggish and costs continue to rise, however, some economists contend any way consumers can access cheaper goods and services is good for the economy.

"Well, the issue is... whose economy?" asks the KRF's Jan Gould. "Should the state of Kentucky suffer?"

Gould touts an argument that's bound to be music to the ears of state lawmakers: "We're losing an estimated $200 million dollars a year in tax revenues that could be used to address pension reform, address education, address the state healthcare problems." And if you want to get technical, he also points out that consumers are already supposed to pay a "use tax" on online purchases, though that voluntary reporting requirement is rarely enforced.

The Remote Transaction Parity Act and The Marketplace Fairness Act, he says, would fix the imbalance and put Kentucky's homegrown businesses on par with massive online retailers.

Yet some of those sellers, such as Amazon.com, have set up operations in Kentucky and already fall under the sales tax requirement. And in cases where they haven't, NetChoice executive director Steve DelBianco writes in the Wall Street Journal that "... there's little evidence that retailers who do collect sales tax are losing significant sales to online retailers. For one thing, shipping and handling charges usually offset any tax avoided by online shoppers."

A September 2015 poll by the International Council of Shopping Centers showed more than 7 out of 10 Kentucky voters backing an e-fairness law that would mandate that online-only vendors collect sales tax at the time-of-sale.

The twin bills winding through Congress have both garnered bipartisan support but face opposition from some some conservative and anti-tax groups.

Josh James fell in love with college radio at Western Kentucky University's student station, New Rock 92 (now Revolution 91.7). After working as a DJ and program director, he knew he wanted to come home to Lexington and try his hand in public radio.