National plan best for closing the Internet sales-tax loophole
The state Department of Revenue plans to ask consumers to pay sales tax on their online purchases when taxes are filed next April. While any attempt to collect sales taxes on Internet purchases is a good idea, this should be a transitional step.
The tax-form plan is, frankly, a feeble attempt. A better approach is a national plan in which Internet retailers collect sales taxes just like brick-and-mortar stores do now.
Since state budgets have come under extreme pressure due to the national economic downturn, efforts to collect sales tax on Internet purchases have intensified. The decade-long effort should have produced a solution before now. Collecting sales taxes on Internet purchases is an issue of fairness as well as its help for state budgets.
California, New York, Illinois, Texas and a few other states have led the fight to collect the taxes on Internet sales. Internet giants like Amazon.com fought those efforts with aggressive legal and political campaigns.
After a particularly costly battle in California, there is an outline of a solution. Responding to efforts to impose sales tax collection on Internet sales, Amazon recently agreed to collect the sales tax money, but not for another year. The postponement denies California hundreds of millions in sales tax revenue, but it sets the stage for future budget help.
The one-year delay is intended to give Amazon and other Internet retailers time to convince Congress to pass a national solution to the problem.
Opponents of extending sales taxes to online purchases say that such a tax will hurt emerging retailers. But companies like Amazon, Overstock and others are not mom-and-pop operations and are fully capable of complying with tax collection and disbursements to 45 states that have sales taxes as well as 7,500 municipalities. They do have a point, however, in their complaints that sales taxes, which vary widely between states and on different types of products, are overly complex.
That complexity issue is addressed in a bill in Congress called the Main Street Fairness Act, backed by Sen. Dick Durbin, D-Mich. A multiyear effort involving 20-plus states produced the Streamlined Sales and Use Tax Agreement.
Durbin’s bill requires states to adopt this simplified sales tax plan to gain the right to collect sales tax on Internet purchases. Further, Durbin’s bill would exempt “small business” from the requirement, but what defines a small business is not spelled out in the legislation.
It’s estimated that Pennsylvania is missing out on about $380 million a year in uncollected sales taxes for Internet purchases. Although that money would not solve the state’s budget problems, it would help.
The state’s current plan to include a line on the state income PA-40 tax form for 2011 asking for a person’s Internet purchases will probably collect only a small fraction of the $380 million owed. But it’s a start.
A national policy requiring Internet retailers to charge, collect and forward sales tax revenue to states or cities with the levy is the best approach. States and the qualifying cities need the sales-tax revenue. And beyond the budget benefits, collecting sales tax is an isuse of fairness, putting Internet-based retailers on a level playing field with brick-and-mortar stores.
The Internet sales-tax loophole should have been closed years ago. But the recent actions by states and the Durbin legislation in Congress are hopeful signs that a solution will soon arrive that helps both state budgets as well as Main Street and mall merchants.
