When Amazon.com opens a huge distribution center next year in Southeast Baltimore, consumers across the state who buy books, electronics, toys or anything else from the online seller will no longer be able to avoid the state's 6 percent sales tax.
Consumers might not like it, but that's just fine with many retailers in Maryland, who say the online giant enjoyed that competitive advantage for too long.
Seattle-based Amazon announced plans Tuesday to open a 1 million-square-foot warehouse that will employ 1,000 full-time workers at the site of the former General Motors plan on Broening Highway, a move welcomed by city and state officials.
Because the warehouse will be Amazon's first physical presence in the state — its nearest warehouse is in Middletown, Del. — it will be required to collect state sales tax from Maryland shoppers regardless of where the shipments originate.
"For consumers, folks are used to paying sales tax on things they buy here," except for on purchases from purely online retailers, said Robin McKinney, director of the Maryland CASH Campaign, a statewide network that works to improve the financial security of low- to moderate-income people in Maryland. "It will be an adjustment for folks, but it's closing a loophole."
That's because online retailers without a physical presence in the state — such as eBay, Overstock.com or Amazon — are not required to collect state sales tax as Maryland businesses must do.
Shoppers who buy products from those online sellers or from any retailer across state lines are supposed to pay the tax voluntarily. Most never do, and Maryland loses an estimated $200 million a year because of that, according to a previous estimate from the state comptroller's office.
The loophole created an unfair advantage for online retailers, said Patrick Donoho, president of the Maryland Retailers Association. Online sellers with stores in the state, such as Best Buy or Home Depot, must collect the state's tax.
"Best Buy has been invested in Maryland for decades, and during that time we have provided customers a place where they can experience the newest technology, get advice to make good shopping decisions and get questions answered," said Jeff Shelman, a Best Buy spokesman, who said the retailer has nearly 3,000 workers who live in the state. "When sellers in the marketplace play by the same rules, we have fair competition based on selection, service and price."
Federal legislation to allow states to assess a sales tax on online purchases, known as the Marketplace Fairness Act, passed in the Senate this year and is pending before the House Judiciary Committee. Supporters say the measure would help bricks-and-mortar stores compete with online companies.
But opponents say the legislation would place an unfair tax burden on Internet-based businesses. It exempts businesses that earn less than $1 million annually from out-of-state sales. Online auction site eBay Inc. has fought efforts to expand Internet sales taxes for more than 15 years, saying it would hurt its small-business sellers' ability to grow, hire and compete.
"For consumers, it means more money out of your pocket when you shop online," said John Donahoe, eBay's CEO and president, in an April letter to eBay sellers, many of them entrepreneurs and small businesses, asking them to express their concerns to members of Congress. "For small-business sellers, it means you would be required to collect sales taxes nationwide from the more than 9,600 tax jurisdictions."
The company is seeking an exemption for small businesses with less than $10 million in annual out-of-state sales or fewer than 50 employees.
"Unlike the giant retailers that have warehouses and networks of stores around the country, small online businesses are usually located in one state and shouldn't be forced to collect for thousands of tax jurisdictions and face audits from out-of-state tax authorities where they do not have any presence or employees," said Brian Bieron, eBay's executive director of global public policy, in a statement Wednesday.
But Donaho, of Maryland's retailers group, said the proposal simply would shift the burden of tracking and paying sales tax from the consumer to the seller.
"It is not a new tax, and it's not a tax on the Internet," Donoho said. "What we support is the same should be applied to people online, meaning that you [the online seller] become the tax collector, just like the brick-and-mortar guy. It levels the playing field. It also enhances the revenue the state will be collecting that's not being paid now."
A spokesman for the Maryland comptroller said the state office is gathering information to determine when Amazon would be required to begin collecting the sales tax. Amazon, which collects sales taxes in 13 states, according to reports, did not respond Wednesday to requests for comment.
"The Amazon facility is welcome news for Baltimore and the state of Maryland that will mean a significant amount of jobs, wages and revenue at a time when all three are desperately needed," Comptroller Peter Franchot said through a spokesman.
In some cases, Amazon has started collecting sales tax before opening a physical center.
According to the Milwaukee Journal Sentinel, Amazon notified Wisconsin revenue officials that it plans to start collecting the state's sales taxes in November, though it won't open its first distribution center in the state until next year. Amazon is developing a warehouse in Kenosha with more than 1,100 workers.