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Editorial: Online tax loophole needs to be plugged

Wed., Sept. 25, 2013

Good news on the revenue front. Washington’s economic forecaster, Steven Lerch, says the state is on course to collect $368 million more through mid-2015 than he forecast in June. Part of that is due to legislative changes, part to an economy that’s awakening, albeit slowly.

Plus, there’s encouraging signs that the U.S. House of Representatives may consider the Marketplace Fairness Act, which would level the playing field between online and traditional retailers and bring in $845 million in additional sales tax revenue to state and local governments from 2015 to 2017, according to state Department of Revenue estimates. That’s if the bill passes in time for the 2014 holiday shopping season.

States could’ve benefited this year if the House had followed the lead of the U.S. Senate, which passed the bill on a 69-27 vote in May. The bill has languished in the House Judiciary Committee ever since, with the chairman, U.S. Rep. Bob Goodlatte, R-Va., expressing vague concerns.

But last week, Goodlatte got specific, and it looks like his worries aren’t so deep that they’d torpedo the bill. He noted seven principles that should provide the framework for debate in the House, and they all look reasonable. Whether reasonable passes muster in this Congress is another matter.

In any event, Goodlatte wants to make sure that in closing the Internet sales tax loophole that the balance isn’t tipped in the other direction. Collection should be simple and not any more difficult for online businesses than traditional ones. That’s fair, and software already exists that could ease the transition.

At the outset, there was concern that sales-tax collection would overwhelm mom-and-pop operations, so an exemption was added to the bill that passed the Senate for businesses that ring up $1 million or less in annual sales. Goodlatte now wonders whether that’s necessary, given the software available, or even wise, since it could serve as a disincentive for those businesses to grow. It’s encouraging that the chairman sees the matter as one of fairness, and if it’s debated on those terms, the bill should pass. He should get support from his party’s leadership, including Rep. Cathy McMorris Rodgers.

There is no rational reason for government to hand an advantage to online businesses. The current inequity has spawned “showrooming,” where shoppers inspect merchandise in a store and then order it online to avoid the sales tax. This is especially concerning in states, like ours, that have a high sales tax (because they don’t have an income tax). The foregone sales tax revenue shifts pressure onto property and business taxes, which adds insult to injury.

Opponents of the bill make the argument that it would raise taxes. Sure, when people pay the taxes they should be paying, revenue rises. Want lower taxes? Then pass a bill that cuts them for everyone, even people who shop in actual stores.

But favoring online shoppers and businesses is a ridiculous loophole that needs to be closed.

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