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NationofChange / Op-Ed
Published: Saturday 21 July 2012
“Leveling the playing field between online merchants and the traditional shops would help states and localities in more ways than simply increasing sales tax revenues.”
If You Like Local Government ...
A rebounding economy will not be enough to pull state governments out of their fiscal mess, says a new report from the State Budget Crisis Task Force. While health and other costs continue to grow, important sources of revenues are shrinking, the group led by former Fed Chairman Paul Volcker and former New York Lt. Gov. Richard Ravitch noted. One of those sources is sales taxes. Some states rely on them heavily for revenues. (Only four don't have sales taxes — Delaware, Montana, New Hampshire and Oregon.)
Sales tax revenues have been falling, thanks in part to a Congress that has meddled in states' ability to collect them. With a few noble exceptions, "conservatives" in Washington have worked hard to ban states from requiring online merchants to fork over the sales taxes that brick-and-mortar stores must charge. Online commerce is the fastest-growing sector in retailing. I put "conservatives" in quotes because real conservatives believe that local government, being closer to the people, is the best government. Deny it money, and you deny it power.
So what business did Washington politicos have denying local governments the tools to properly fund themselves? None, outside of irresponsible politicking. Telling states they could not tax the sale of a printer or tomato cage if it was bought online lets the lawmakers boast of their tax-cutting prowess while dumping the consequences on state and local governments. The notion that anything sold on the Internet should be tax-free was engraved in Republican ideology, making it hard for GOP governors to object to it.
But with their states strapped for funds, Republican governors are finally joining their Democratic colleagues in demanding the right to collect the same taxes from online merchants that they do from stores on Main Street or in the mall.
Sen. Lamar Alexander, the Tennessee Republican and former governor, is pushing forward a bill to give states that authority. The result could be $23 billion in new revenues for states, according to the National Conference of State Legislatures.
Leveling the playing field between online merchants and the traditional shops would help states and localities in more ways than simply increasing sales tax revenues. Earthbound retailers are essential players in the local economy and culture. They pay real estate taxes. They hire locals, who then pay taxes. Very often they sponsor youth sports teams and buy ads in the high school yearbook.
What's happened is that many stores have turned into showrooms where consumers come to look, and when they find something they want to buy, go online to avoid the sales tax. The retailer Lowe's told The Wall Street Journal that being subject to the sales tax put it at a 5 to 10 percent cost disadvantage with the online competition.
Striking how many politicians justified this crashing unfairness. Their excuse was a 1992 Supreme Court ruling that let states collect sales taxes on mail order purchases sent to their residents only if the merchant had a physical presence in the state. At issue were catalog sales — online commerce then being a thing of the future. But Congress made sure that the same deal was extended to Internet retailers. Most online companies oppose changing this state of affairs, though the giant Amazon, expanding its physical presence in several states with warehouses, seems now on board.
Alexander has updated the script for 2012. "Conservatives don't want to pick winners and losers," he said. "And our bill gives states the right to tax the online purchases. It's states' rights." Indeed, it is, and it's about time that Washington lawmakers stopped handing tax breaks that come out of other governments' hide.
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ABOUT Froma Harrop
Froma Harrop’s nationally syndicated column appears in over 150 newspapers, including The Dallas Morning News, Houston Chronicle, Seattle Times, Denver Post and Newsday. The twice-a-week column is distributed by Creators Syndicate, in Los Angeles.
Harrop has written for numerous other publications, ranging from The New York Times and Institutional Investor, to Harper’s Bazaar and Metropolitan Home. Previously, she covered business for Reuters Ltd., in New York, and was a financial editor for The New York Times News Service.
A Loeb Award finalist for economic commentary, Harrop was also honored by the National Society of Newspaper Columnists. Over the years, the New England Associated Press News Executives Association has named her for five awards.
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By Ronnie Cummins
11 comments on "If You Like Local Government ..."
July 22, 2012 11:56pm
I am a small merchant (Bothell Jewelers & Collectibles) with a jewelry, antique and collectibles store. I make enough to pay my expenses but not much more. I also have a website where I sell items to people all over the country and beyond. The small amount of sales I generate are not enough to cover the costs of dealing with sales tax from all those areas. I would simply stop selling online if that happened. The huge amount of paperwork would not make it worthwhile to continue. One thing to also consider in this issue is shipping costs. If someone buys online that person would have to pay shipping to get the item and that usually is roughly equivalent to the sales tax, so there is no huge cost advantage in buying online as compared to shopping in a store. I agree that states are suffering but as mentioned before it is because of our lopsided taxing system that favors the wealthy. If those people paid a fair share of taxes instead of hording income in tax havens outside the country, the states and everyone else would be a lot better off!
July 22, 2012 9:08am
You know I wonder if anyone of the posters to this site, who have likely purchased items over the internet and not paid sales tax, sent the unpaid use tax into their respective state governments? Let me explain. Every state which has a sales, which is directed at retailers, has a corresponding use tax directed at consumers. That is if you purchased something out of state upon which the state you reside in has a sales tax, you the consumer are responsible for paying the sales tax on that purchase. What I propose is this: let the Amazon's and the larger merchants on e-bay keep track of what you buy and at the end of the year send you essentially a 1099 listing how much taxable merchandise you bought, based on your state of residence as determined by your credit cards, and send a copy of that to your state of residence. You would then pay the tax when you filed your state income tax return. If you didn't need to file an income tax return then they could just send you a sales tax bill which you would pay. That way the Supreme Court decision is upheld and the sales tax gets collected. After all it is a tax the consumer pays not the retailer.
July 22, 2012 9:43am
Agreed, sales tax is not on the retailer, they just are forced to serve as tax collector for the state.
July 22, 2012 9:21am
Most internet sellers, like most businesses, are SMALL Businesses. Imagine registering with all 50 states, tracking 50 different sales tax rates each with different state tax I.D. numbers, annually filling out 50 different state forms (matching quarterly deposits with sales claimed), and making 200 quarterly deposits on 50 additional and different forms (even if the balance due is 0$).
How will the states audit for compliance accuracy? Send an auditor from Delaware to California? How are resale certificates handled and audited?
Under reporting taxes collected for remote states could be profitable and tempting. Serving as sales tax collector for Mississippi is not part of my business.
If there are legal issues where do we go to court? Can Florida subpoena a California Business to appear in Tallahassee over a $200.00 discrepancy? Can my lawyer practice in Florida?
WHAT A MESS of an idea!
How will point of sale tracking occur? There are currently no software programs to handle this issue, but when there are, will every internet seller need to purchase one and how will they integrate into their existing computerized system (if they have one)?
STATES HAVE A SALES TAX BACKUP PLAN
California, like most states, has a use tax.
Quote "Sales Tax vs. Use Tax: What’s the Difference? Tax collected by the retailer here in California is called sales tax, and the retailer is responsible for reporting and paying the tax to the state. When an out-of-state or online retailer doesn't collect the tax for an item delivered to California, the purchaser may owe "use tax," which is simply a tax on the use, storage, or consumption of personal property in California."
Yes, this idea is a "no brainer", only those with no brains will support it.
July 21, 2012 1:46pm
Outside of food, medicine, electricity, water, sewers, and some clothing, consumption taxes are a great thing. People hollar about the poor being hit the hardest. It does not have to be so. I know people who have yet to pay a dime in sales tax this year and they are not buying taxfree online. They just are not buying items that get taxed. Instead, they are trading for things they need, repurposing, and freecycling.
The essentials to maintain life should not have a consumption tax placed upon them. Everything else, 15% sounds fair. Those who consume more, pay more. The rich consume more, thus will pay more. And if the poor choose to buy a $200 pair of taxable shoes rather than a similar look and same function $100 tax free pair, that is their choice.
Of course there will need to be a corresponding cut in income taxes for those in the lower wage catagories so that it will even out if these people consume as normal or if they pay attention to what they are consuming, they can come out ahead.
July 21, 2012 1:10pm
As Albert says, sales tax is regressive. It hits poor people hardest.
The right reform combination is, i think: (a) cut unnecessary military expenses (meaning close our hundreds of foreign bases from Korea and Japan to Germany and everywhere else, and end all wars and plans for meddling everywhere) (b) put tariffs on imported goods to protect jobs here (c) forgive student loans and promote education for everybody qualified and (d) if and as needed raise income taxes on those who can pay (top 1%).
If we can junk our expensive foreign wars we may not need so much dough.
But raising sales tax is the very worst way to get revenue. Income tax on big incomes makes the most sense.
July 21, 2012 11:12am
The article blames online retailers for the shortage of money states have.If corporations weren't given hugh tax cuts to move to that state or locate in that city,the local governments would have enough money.You say its a republican issue,i am or was a strong Democrat when they represented the people.When the corporations start paying their fair share then i will be glad to.How many hundreds of millions in each state has been lost because of tax breaks to bussinesses,we see our schools,libraries,roads suffering because the greedy leech corporations and bussiness don't pay a fair share of taxes.
Every true liberal knows the sale tax is a regressive tax which hits the poor and middle class more then the rich.In Ohio our stupid govenor wants a 13% state tax on all purchases.Of course he is a Rethuglican,so don't tell me its a Republican issue.Taxing online sales companies is just another tax added to the middle class and poor so the companies don't have to pay taxes
July 21, 2012 11:55am
What do you expect from a system set up to maintain the elite in power and keep their EASY cash flow intact. How many wage earners are represented in our system of government? If you scratch the surface, you will see an iron fist punching you in the nose so hard that if it does not kill, it will certainly make you remember the experience for a long time! Every little bit of people power is obtained with blood, sweat and tears. And every step of the way, that power is being usurped by the elite and its governments. You and I are just drones to keep them in power and let them have their way with us. Don't believe it? Look around you again! Liberals are the thinking people of the society who know things are wrong and they are trying to make them right but are facing uphill rock of Sisyphus! Glad there are people like to be a gadfly.
July 21, 2012 11:08am
The real problem is that thanks to this country's reluctance to directly tax the rich leeches who derive the lion's share of the benefits of government most of the local and state's tax burden is falling disproportionately on those least able to afford it!
This BIG LIE is perpetuated by the elites by concentrating on the slightly progressive MARGINAL income tax rates (not the actual, smaller percentage that rich people actually pay in income tax) and ignore the raft of REGRESSIVE taxes imposed on the lower classes -- primarily the egregious sales tax that hits the poor the hardest and property taxes on non-affluent home owners and renters...
A taxation system could be designed that could provide substantial tax relief on goods for human needs and impose substantial excise taxes on the rich that reflect the actual benefits that the elites derive from OUR labor...
Of course, while the governments at all levels are wholly owned subsidiaries of the corporate capitalist class -- Ain't gonna happen...
July 21, 2012 10:41am
To anyone who actually thinks this through, it is a "no brainer". Of course 'on-line" merchants should be subject to the same sales tax requirements as brick and mortar retailers. As a former retail merchant, I experienced that "showroom" factor many times. To the point that the manufacturers of the products I sold began to disguise product numbers and other identifing features in order to reduce the ability of shoppers to play that game. It seems that people have yet to figure out that if you only use your local merchant as a showroom for your on-line purchases, before long there will be no local merchants. But pleading to your elected representative in Congress is only effective if you let him/her know that the lobbiests who support that position and their campaign, can not buy your vote in the next election. Or can they?
July 22, 2012 9:03am
Larronm.........err........You haven't "thought this one through"