(WBIR - Knoxville) A group of Knoxville businesses say they want to get rid of a sales tax loophole that gives online competition a big advantage. For Knoxville stores, that advantage adds up to 9.25 percent.
"We have to charge our customers 9.25% sales tax and the internet-only retailers are selling the same items without collecting a dime of tax," said Scott Schimmel, owner of the three Bliss stores in Knoxville.
At the Bliss Home store on Market Square, Schimmel showcases a wide range of furniture, bedding, and just about anything else he comes across at local trade shows or from local artists. However, he says there are times when Bliss and other shops in town serve as a showroom for customers to browse items in-person and then buy the item online tax-free.
"It is not only on the big items where someone is going to pay hundreds of dollars in tax. It could be something as small as a key chain. Even if someone thinks they are going to save just a few cents, sometimes is worth it to them to go online and not pay sales tax," said Schimmel.
"People will go into a store and shop for something, then snap the code with their smartphone or take a picture of the product information. Then they go online and buy it to save the sales tax. That's not fair to local shops," said Mike Cohen.
Cohen represents a group called The Alliance for Main Street Fairness, which is pushing for the U.S. House to pass a bill called the Marketplace Fairness Act. The bill has already passed the Senate and would make it the responsibility of the online retailer to charge local sales tax.
"This is not a new tax. Right now the law is set up so the consumer is technically supposed to be keeping track of their online purchases, then self-report and pay that tax at the end of the year. Nobody does that. We want to shift that tax responsibility to the retailer instead of the customer," said Cohen. "Right now what the government is saying is if you sell only online, we are going to make it look like you have a lower price than your brick and mortar competition. It is not right."
Cohen says previous estimates showed Tennessee is losing between $400 million and $800 million annually in online sales tax revenue. Thursday afternoon, Cohen said the group will hold a press conference at Bliss on Market Square to unveil a new study on the economic impact on the sales tax loophole.
"The study was done by Arthur Laffer, who was one of the main economists for the Reagan administration. We are announcing the results of that study tomorrow [Thursday]," said Cohen. "I believe this study will make it clear how important it is to pass this bill, particularly for states like Tennessee that rely on sales tax and do not have income tax."
Schimmel says closing the loophole could tip the scales back towards fair commerce and competition.
"We need to level the playing field for the bricks and mortar businesses. It just seems unfair for the online business to use us as their showroom."