How Closing The Online Sales Tax Loophole Would Help Low-Income Families

The Senate will likely vote this week on legislation that would close the “Amazon Loophole,” a tax loophole that allows online retailers like Amazon and eBay to avoid collecting sales taxes on most purchases made through the sites. The loophole gives online retailers a major advantage over their offline competitors, since they only have to collect sales taxes in states where they have a physical presence.

The Marketplace Fairness Act, which has bipartisan support in the Senate, would change that, giving states the authority to levy sales taxes on online purchases even when the retailer isn’t based within a state’s borders. Passing the legislation would both remove an unfair advantage for online retailers give cash-strapped states more authority to collect sales taxes. But despite warnings from conservatives that it would represent a “government takeover of the internet” and levy “taxation without representation,” the loophole also makes sales taxes even more regressive, since low-income families often don’t have access to online retailers:

Even apart from the Internet sales tax issue, poorer families pay a larger share of their income in sales taxes than better-off families do because they have to spend almost everything they earn. Tax-free Internet shopping compounds the problem: many low-income families would love to shop online to avoid sales tax but can’t because they don’t own a computer or can’t afford high-speed Internet access.

In addition to placing even more of the burden of sales taxes on low-income families, the inability to collect sales taxes from online retailers costs states billions of dollars, exacerbating the budget problems they have faced since the Great Recession. Those problems have led to substantial spending cuts, most of which are targeted at education, unemployment, transportation, and other programs that help low- and middle-income families, meaning the loss of revenue from the Amazon loophole (which Amazon now supports closing) gives an unnecessary advantage to some businesses while hurting the most vulnerable Americans in multiple ways.