NORMAN — Congress is taking a stab at tax fairness.
At least, where states are concerned. If you’re looking for meaningful reform of the federal tax code, that’s going to have to wait.
But the Senate has just voted for a bill that will allow states to collect sales tax on most Internet purchases. The measure goes on to the House, where the outcome is uncertain.
There is, however, no doubt that businesses with online operations tend to benefit greatly from current rules. Traditional brick-and-mortar retail establishments have to pay sales taxes, which range as high as 9.25 percent in some parts of the country.
Right now, states can require collections of sales taxes for online activities if the business has a physical presence in a given state. But most online sales operate under the radar screen of taxing bodies.
How much money is involved? The U.S. Commerce Department calculates last year’s Internet sales in the United States at $226 billion, a 16 percent increase from the prior year. Other estimates say states lost $23 billion in revenue because these activities were beyond their taxing reach. So it’s relatively easy to argue the current situation is unfair, not only to brick-and-mortar businesses, but to all taxpayers. If states cannot collect billions in sales taxes, it’s safe to assume they’re getting money from other sources.
Yet saying this is the easy part. The hard part is establishing a system that not only allows states to collect these sales taxes, but also does it in a way that won’t discourage online commerce.
If this law passes, affected businesses would have to collect — and pay — sales taxes to all states that have these levies. What’s more, in some states, individual municipalities have separate sales taxes.
It’s one thing for a business to collect sales taxes and pay them to the local taxing entity. But if you are required to do so for taxing bodies across the country, it becomes a real burden.
To counter that, the Senate bill says an online business must have $1 million in annual sales before it can be taxed.
And states must create central taxing systems, so businesses aren’t sending payments to cities or other municipalities.
Still, critics of the measure contend too many smaller businesses will be hurt, stifled by the bureaucracy of having to appease so many different states. Having sales of $1 million sounds like a big operation, but that’s not the same as $1 million in profits.
We think this type of legislation is overdue, but we also recognize it must be done with care. And perhaps states — which also ought to be interested in fostering business — should look for ways to establish a sales tax collection system for online operators that’s more streamlined than the one that exists now.
— New Castle, Pa., News