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Internet sales tax fairness needed now

July 13, 2012

Congress can easily help cash-strapped states collect millions in sales taxes from Internet sales. RIPR political analyst Scott MacKay explains why action is needed to protect Main Street retailers.

The sun is high; your vacation is nigh. What better way to while away a splendid July afternoon in the Ocean State than a trip to the shore with that book you’ve been meaning to get to.

With visions of the rhythmic dance of surf on sand stirring in your mind, you head off to the nearest bookstore in search of that great read. You stop at, say, Barrington Books or Providence’s Books on the Square, two friendly local booksellers. You are free to browse the bookshelves, ask the staff for suggestions and leaf through their reviews.

But you don’t buy anything. Instead you go online and order the book you picked out. You can even do this from your smart phone in the store.

With a click of an electronic mouse, you will save at least seven percent of the book’s cost. That’s because you won’t pay Rhode Island sales taxes on your Internet purchase. Had you bought the book at a local store you would have had the tax added to the purchase price.

Your smart shopping is costing our struggling state government money and making it infinitely harder for local stores, the lifeblood of our downtowns and Main Streets, to stay in business.

You can repeat this shopping bonanza for just about everything else you need for that relaxing day at the beach, from swim trunks to surfboards. What could be more unfair to small businesses than this system, which is the result, of course, of government rules.

Many states have approved legislation requiring online retailers to collect taxes for the states. But the retailers have refused, citing a 1992 U.S. Supreme Court decision that let online companies flout such laws as long as they didn’t have a physical presence, such as a warehouse or call center, in the state where the customer lived.

Consumers in many states, including Rhode Island, were technically liable for paying the sales taxes from online purchases. Yet as a practical matter, there is no way to enforce these laws because no state could hire enough revenue agents to chase down millions of small purchases. Amazon, the largest of the online retailers has been cutting deals to collect taxes in some states, including Texas, California, New Jersey and Virginia. But the company has passed over small states, which means Rhode Island has been left out.

There is some light at the end of this tunnel; change is in the offing. Amazon is finally coming around to the view long espoused by state governments and main street retailers. The company now supports legislation pending in Congress called the Main Street Fairness Act that would require online companies to collect sales taxes and send them to state coffers. (Amazon also collects sales and value added taxes in European countries). This measure is one of the few in today’s polarized Washington, D.C. that has bipartisan Senate support. Both Rhode Island senators, Democrats Jack Reed and Sheldon Whitehouse are sponsors of this approach.

For states in the recession-plagued economy, approval of the national Main Street Fairness legislation could mean as much as $23 billion in new revenue. The Rhode Island state tax division estimates that our state would harvest about $70 million in new sales tax money….enough to pay off Curt Schilling’s bad 38 Studios loans.

Or maybe the state could use the money to keep our mile after mile of sparkling state beaches clean and well-staffed. Enjoy your day at the beach. And the book.

Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:45 and 8:45. You can also follow his political reporting and analysis at our `On Politics’ blog at RIPR.org

3 Comments leave one →
  1. July 14, 2012 1:18 am

    My wife and I own and operate a small online business benefitting greatly from technological innovation and scalability made possible by Cloud Computing. Until recently we were struggling with legacy tax procedures in our home state. The administrative burdens and expenses complying with States’ tax laws became onerous forcing me to search the Internet for a solution. What I found seems, to many, unbelievable.

    My company now employs free technology hosted on Amazon’s Ec2 cloud infrastructure enabling my company to easily calculate, collect and remit sales tax for any jurisdiction in any state. TaxCloud seamlessly integrates with multiple payment platforms and shopping carts eliminating unnecessary administrative burdens. Now my tax processes are automated and efficient.

    3dcart CEO Gonzalo Gil states:

    “As another building block in our effort to ease the management process for online store owners, TaxCloud is the kind of efficiency application that is practical now and helps you plan for the future….this represents another way that automation is saving time and money for online retailers.”

    Technology now freely available to any size business easily handles sales tax processing for any jurisdiction in any state. As Mr. Shay from the NRF points out it is now easier for businesses to process over 10,000 different tax jurisdictions than deal with the multiple complexities involved with shipping. Furthermore, the ICSC has discovered an average of 90% of Internet consumers desire to have sales tax collected by merchants at points of purchase instead of having to track and remit use tax individually. Governments also realize sales tax automation ensures more of every tax dollar funds intended programs.

    I strongly support and urge Congress to immediately pass S.1832 the Marketplace Fairness Act granting states the choice to efficiently enforce their existing sales and use tax laws. Individuals, businesses and government will all benefit tremendously utilizing the efficiencies made possible by new technologies coupled with the power and scalability of Cloud Computing.

  2. July 15, 2012 2:34 pm

    scott,

    you almost had me, right up until you pointed out that RI could spend the money to pay off 38 studios loans. that is just the kind of thing that makes people think they want to deprive the state of money because they don’t trust their elected officials not to fritter it away. Thus not giving the state 7% is a deliberate decision to keep your own money.

    depending on the item, shipping may make it more expensive anyway and I don’t visit this philosophy on local merchants who stock what I want and have the local service to go with it. Yesterday I bought appliance parts locally that I could readily have had shipped in; but the retailer is service oriented, cost competitive and stocks widely. But why should I pay RI tax when its politicians will not maintain an environment that attracts retailers who could be so competitive.

    Where a local retailer has managed to maintain a service oriented and relatively competitive business I doubt that the 7% is the margin driving purchasing. But when I would have to order from a retailer or pay significantly more the internet allows me to comparison shop effectively.

    Not so counterintuitively, RI could turn this internet tax freedom to its advantage if it had a decent business environment as it could encourage etailers to locate here. Since RI is a small state and they would only have to collect tax on sales to Rhode Islanders, and then they could offer tax free sales to all the other states.

    but our business climate is sadly lacking with everything else these etailers would like, e.g., low property taxes, modest regulatory ambitions, etc.

    Better to worry about those than taxing the internet.

  3. July 16, 2012 10:49 am

    tax the rich

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