Would an Online Sales Tax Help Cedar Falls Businesses?

Could a federal law help local traditional retailers compete with online businesses that are unburdened by sales taxes?

"I think it will help level the playing field," Cedar Falls business owner Gretchen Bahm said of the Marketplace Fairness Act, which would require a sales tax for online purchases.

The Marketplace Fairness Act would require businesses with more than $1 million in annual Internet or catalog revenue to collect sales tax for online purchases and send them to the state where the buyer resides. A Huffington Post report cites a National Conference of State Legislatures estimate that states collectively lost $23.3 billion in sales tax revenue in 2012 due to online sales.

U.S. Senate could vote on the bill, which has bi-partisan support and the blessing of President Obama, as soon as today.

Supporters say the bill would help retailers battle a practice called showrooming, when shoppers survey a store's goods and then buy it from an online competitor. Ad Week cites Placed and Gartner research that 60 percent of customers use traditional retailers to examine items they intend to buy online.

"I would definitley say it has an effect on our sales and the bottom line and just how people shop," said Debra Kroll, owner of Peekaboo Baby at 108 Main Street. "People come in, they want to see the product and use the knowledge of our customer service people, and then they go buy it online to save a few bucks."

Opponents, however, say the bill would harm small business by making them tax collectors and "put them in a position of having to purchase software to calculate sales taxes, according to the Huffington Post report.

A University of Iowa marketing professor called the bill a mixed bag.

Overall, it should be an equalizer for traditional retailers, but tax collection can be complicated and may require added costs to execute, which could overburden small businesses that are already stretched thin, said Gary Russell, Henry B. Tippie Research Professor of Marketing.

"I think it is probably inevitable in some form, because lack of taxation you could argue does give online firms an unfair advantage," Russell said. "But, if this passes does this solve all the problems that online firms present? No, it doesn't."

Bahm owns Kitchen Essentials, at 221 Main Street. Many business like hers have lost customers to online competition. Online sales now accounts for 16 percent (and climbing) of all retail, up from 2 percent in 2000, according to a Federal Reserve Economic Data report.

 She would also like to see the state gain tax revenue from online businesses.

"I think it can only help improve the economic sitatuion in the states. We lose a lot of sales tax money," she said. "Nobody likes to pay taxes but they do keep things running."