Congress continues to move at a snail’s pace in confronting the increasingly important issue of getting online retailers to collect state taxes.
A Senate committee took testimony earlier this month before Congress went home for the rest of the summer. But the deadlock over how to deal with the shift toward online shopping continues.
Citizens accept the tax on what they purchase in order to distribute the taxes they pay among a variety of sources. That is why a tax on a purchase from out of state is called a “use tax,” and is equivalent to the sales tax paid on an item purchased in-state. (If you pay a sales tax to the state where you made a purchase, as when you travel, you do not also owe a use tax if you bring it home.)
Online sales often dodge the whole tax issue, paying nothing to the state where the company is and collecting nothing for the state where the item is headed. That is permissible under a U.S. Supreme Court ruling years ago that said no law required companies to collect taxes for states where they do not physically operate.
Amazon, surprisingly, has gone to bat for congressional action to set up collection of remote taxes. Presumably that’s because Amazon has been expanding its warehouse operations and now has a presence in many more states than it used to. But many other online companies continue to fight against collecting sales taxes.
Meanwhile, most states face increasing financial troubles. The hope that citizens might voluntarily pay remote sales taxes is mostly a pipe dream. And online commerce continues to grow. In the first quarter of this year, online sales topped $50 billion – the first time that mark was reached outside of a non-holiday shopping quarter.
Besides states, retailers with actual stores have stepped up their calls for collection of the sales tax. They increasingly feel like showrooms for products that customers then order online, getting an immediate discount, although shipping charges sometimes wipe out the advantage. Many companies with stores nationwide also offer online service, but their physical presence in most states means they also must charge sales tax.
The fact that nationwide merchants charge sales tax no matter how a product is ordered or where it’s shipped belies the contention by online retailers that it’s just too complicated to figure all that out. Most states have made uniform categories for taxed and untaxed products, and computer programs make it increasingly simple.
There are advantages to online shopping – gas saved, ease of comparison pricing, etc. – that may well exceed the costs of paying the sales tax. And if sales taxes dwindle as a revenue source, states will have to hike other taxes simply to maintain a consistent level of services. It’s actually in most people’s interest for Congress to provide for the collection of state taxes on all online purchases.