Over the last few weeks, the citizens of Bakersfield have come face-to-face with a challenge currently confronting city and state governments across America: declining sales tax revenues. California cities are experiencing persistent budget shortfalls and deficits. One of the main culprits of these fiscal problems is the online sales tax loophole. It creates an uneven playing field slanted against Main Street sellers like our family business, hurting our many dedicated employees while forcing public service cuts that hit close to home.
It's time for a fair, fiscally responsible, 21st-century solution, and congressional leaders like Kevin McCarthy must step up to the plate.
When you shop online, even if a sales tax is not collected, you still owe the equivalent amount on the product you're buying, called the use tax. The responsibility for paying use tax falls directly on you, and obeying the law means carefully tracking every online purchase and calculating exactly how much you owe. Many Californians don't even know they owe the tax, and accidentally fail to pay their fair share. It's no wonder that use tax collections in California can't begin to make up for sales tax revenue lost to online shopping. As more and more Americans shop online, the problem has compounded across the country.
With the online sales tax loophole, we all end up shortchanged. Sales taxes make up nearly one-third of all general fund revenue collected here in Bakersfield and, when revenues can't cover the cost of essential services, the city faces damaging cuts that threaten public safety and quality of life. City leaders have already identified fire and police service as targets of potential cuts if Bakersfield's budget deficit persists, lengthening response times and stretching public safety resources thin. We're not talking about cuts to big government programs — we're talking about changes that will directly impact daily life. Alternately, declining sales tax revenues can force steep tax hikes or the imposition of new taxes, stifling local economies and adding new burdens for taxpayers.
I believe it's fundamental that our government treat people with fairness. Our tax code shouldn't pick "winners" and disadvantage "losers," but that is exactly what the current sales tax system does. Businesses like mine, our local Johnstone Supply, should compete fairly on the basis of quality, price and service, not on how much tax we are required to collect at the register. Closing the online sales tax loophole will allow Main Street and local businesses to compete with online retailers on a level playing field, supporting Bakersfield jobs and vibrant local economies in communities across California.
In the fast-paced 21st-century economy, there is no excuse for a backward sales tax system that burdens shoppers and disadvantages Main Street sellers and local business owners. At the same time, we cannot afford a patchwork of laws and regulations that makes it harder for businesses and customers to shop online. Californians deserve a commonsense federal solution that empowers states to collect taxes they're already owed, while also imposing some basic rules on government to keep the system simple and fair for everyone.
This solution is embodied in the Remote Transactions Parity Act (RTPA) and its Senate counterpart, the Marketplace Fairness Act, which are currently being considered in Congress. RTPA returns power to the states to create a sales tax collection system that is fair and easy for online businesses and consumers.
The responsibility for solving the growing problem of unfair sales tax policy, and the power to implement rules that protect e-commerce customers, lies with Congress. According to an analysis conducted by the Marketplace Fairness Coalition, over the next five years the state is projected to lose $32.3 billion due to the remotes sales tax loophole. California cannot afford any delay. Congressman McCarthy and his colleagues must advance RTPA, helping California cities like Bakersfield address budget challenges responsibly, without painful cuts and even more painful new taxes. Local taxpayers, brick-and-mortar businesses like mine, and the many workers we employ are counting on you. The solution is clear — now, Congress must act.
Ryan Kalmbach is the CEO and second-generation owner of Orion Distributing, Inc., a family-owned Johnstone Supply operator now in its 33rd year of business.