Sorry, it’s not a very catchy title! But this is a big issue with ramifications for public finances and who pays for local services. As internet sales increase the cost burden of local property taxes potentially increases on bricks and mortar businesses relative to sales and the impact on their competitive position will grow. What will be the policy response to this? The debate about internet shopping is currently focussed on corporation tax (Google, Amazon,etc – will the consequences of internet shopping widen that debate?
Over the last year, I’ve been involved in a local campaign which has involved lots of discussions with local businesses and one of the issues has been the level of business rates (property taxes) and a possible 50% increase to pay for an infrastructure project. What has surprised me has been the level of business rates compared to residential property taxes and the relatively few services which these businesses benefit from. To give an example small shops are paying £20,000 per annum, a larger gallery £60,000.
The other theme has been the competition from internet sales when a bricks and mortar business has to pay rent and business rates while an internet retailer pays either lower or no business rates depending on location in the market they serve. This is complicated by the three way split in retailers : internet sales , shop sales and those hybrid businesses which combine shop sales and a click and collect offering.
There is a major issue here for local government finance. As internet sales increase with home delivery or click and collect services the competitive pressure on business rate income will increase. An internet sale provides no tax take for a local authority of the customer. The logic of this benefit is that an internet retailer should be able to undercut a local shop in price. If the consequence of this is fewer local shops then local authority finances will reduce and this will place more pressure on raising revenue from the tangible businesses in that area which survive. Take as an example a retail group which starts to offer click and collect service through a supermarket which competes with a local store. Over time the local store declines and closes faced with the competition from the retail group store. The closure of the store reduces local property taxes even though the actual sales in the location may have remained the same in total or increased
It is unlikely that our enjoyment of the shopping experience will end, but it will come under pressure if internet sales continue to increase. Retail groups have forecast a reduction in employment in shops as a result.
Will this trend see local government seeking to tax internet customers in some way or the intermediaries who provide the platforms for so much of online shopping? Such a tax could be imposed on the basis of the postcode / zipcode of the customer. In other fields of taxation we have seen pressure to recognise a greater share of taxing rights to the market rather than the producer. Will internet shopping require a policy review of how local property taxes on business work?
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