A bill that would enable states to collect sales taxes due for online purchases sailed through the U.S. Senate last week in a 69-27 vote. But it faces a fight in the House, where anti-tax advocates have vowed to defeat the Marketplace Fairness Act. States that charge no sales tax such as Montana and New Hampshire oppose it, too. So do some, but not all, online merchants, including eBay and Overstock.com.
We urge the House to approve the measure, and we think it will. We have a hard time imagining the alternative:
Picture members of Congress back in their districts trying to explain why their hometown brick-and-mortar retailers will have to continue operating at a competitive disadvantage. Sorry, Ms. Local Merchant, you have to collect sales tax. Your online rival doesn’t.
That could incite some ugly scenes at the Rotary Club.
And with good reason. It is unfair to require that Main Street businesses collect sales tax owed by their customers and ship that money to state revenue departments, while online merchants get to skip that same obligation (and enjoy the resulting price advantage).
Keep in mind, this bill would create no new taxes. The only additional sales tax revenue that would be collected is the amount that consumers already owe for their online purchases.
Shopping on the Internet is usually not supposed to be tax-free. Customers typically are supposed to be remitting the amount of sales tax due. In practice, almost no one does. States lose some $23.3 billion in revenue each year — a burden spread among other taxpayers.
We can’t fault citizens for scoffing at the idea of submitting those sales taxes. Current law is unenforceable. It’s too difficult for taxpayers to keep track of their annual amount due. The only way for states to efficiently (and fairly) collect what’s owed is for all online merchants to collect it, as their counterparts with retail stores on the ground already do.
Opponents complain about the bill’s alleged complexity. With hundreds of different tax regimes at play, it supposedly would be a terrible burden for online merchants to comply with the new requirement. To hear critics tell it, hundreds of different tax authorities are poised to descend on these helpless businesses, conducting audit after audit until, presumably, the hypothetical victims are ruined.
Such catastrophizing has nothing to do with the reality. Fact is, online merchants that have stores located on the ground already collect every penny of sales tax in the states where they operate — whether their customers shop at the store or via computer. Customers who buy a bike at Wal-Mart.com or a bedspread at Target.com pay sales tax just as if they bought those same items at their neighbourhood Wal-Mart or Target.
As an unnecessary sop to those who persist in imagining that a computer-based business can’t add a sales tax program to its checkout page, the bill approved by the Senate exempts online merchants with annual revenues of less than $1 million. Some critics of the bill have made noise about pushing that exemption up to $10 million. No exemption is needed or justified. Every Main Street business, big and small, has to collect sales tax when it’s due. Every online merchant should too.
We’ve often pushed hard for lower tax rates. As a general principle, we also believe in broadening the tax base. That concept is more equitable than the current retail imbalance, in which the customers of brick-and-mortar retailers essentially pay a penalty for following the spirit and letter of the law.
The Marketplace Fairness Act is a step in the right direction. It is smart, overdue legislation that deserves bipartisan support in the U.S. House.