April 10, 2013
April 10, 2013
Internet tax surfaces again
By Oregon Tax News,
A bill proposed by three prominent U.S. senators would give states broad new taxing power over online retailers located outside their boundaries. The Marketplace Fairness Act was proposed in February by Senators Mike Enzi (R-WY), Dick Durbin (D-IL) and Lamar Alexander (R-TN) and could make shopping online more expensive and complicate business for online retailers. States would be given authority to “compel” businesses to collect taxes for online purchases made from state residents, regardless of where the participating businesses are physically located—a move that critics say violates a 1992 Supreme Court ruling denying states such authority.
Oregon along with Alaska, Delaware, Montana and New Hampshire do not have a statewide sales tax. But there is a sales tax in the 2013 Legislature (SJR 13 & SJR 36) and a hearing next week in the Senate Revenue Committee to discuss them.
The measure marks the latest effort by supporters of the so called Amazon Tax to subject online purchases to the same state sales taxes levied on purchases at “bricks-and-mortar” retailers. Though 45 states have a sales tax, few states actually collect taxes for online purchases. Those that are currently trying to do so, have seen their attempts mired in legal battles. In state capitals across the country, however, lawmakers are increasingly pursuing an online sales tax as way to generate revenue and ease budgetary pressure.
Opponents of the Marketplace Fairness Act say there are several reasons the legislation is a bad idea.
Reduced competition. Supporters of the Amazon Tax have long argued that online retailers have an unfair competitive advantage and that subjecting online purchases to state sales tax levels the playing field. According to critics, that position reflects a one dimensional understanding of the benefits of online shopping. They argue that retailers with a physical location actually have distinct advantages over online retailers. Consumers that need something “today” don’t buy online, and there’s a psychological advantage that bricks-and mortar retailers enjoy since online shopping involves greater uncertainty in terms of product quality. Moreover, traditional retailers don’t have to collect sales taxes for states in which they do not have a physical location. The Marketplace Fairness Act would, therefore, put online retailers at a further competitive disadvantage.
States would be not be accountable to businesses over which they have taxing authority. A retailer in Washington, for example, engages in transactions that produce income for the state in which it operates. Washington authorities in turn provide services for its businesses and are accountable in some measure to them. Under the Marketplace Fairness Act, a retailer in Washington could conceivably produce income for any state with a sales tax, even though it has no real say in whose elected nor does it receive any civil benefits provided by authorities.
Burdensome regulations and auditing requirements. Online retailers would be forced to comply with tax requirements of any state that has sales tax in which they do business. The bill’s supporters respond by saying that concern over increased regulation is overblown because only states that simplify their tax code and make multistate sales tax collection easy will be granted tax enforcing authority over online purchases.
Negative economic impact. The e-commerce sector has been an economic bright spot in an otherwise beleaguered economy. Online shopping has continued to grow at a tremendous rate in recent years—15 percent growth in 2012, compared to 5 percent for traditional retailers—even as most other sectors of the economy stagnated. Consumers would no longer be able to save money shopping online and retailers would pass increased regulatory costs on to consumers, as well.
Legislation similar to the Marketplace Fairness Act has been previously proposed but failed to gain enough traction. This time, the bill’s sponsors included an exemption for businesses making less than $1 million to make it more attractive.