Legislation introduced in the U.S. House of Representatives last month would make it easier for states to require Internet retailers and other out-of-state Web-based businesses to collect sales taxes at the same rate imposed by local stores. The legislation is sound. It does not levy new taxes or establish new rates; it simply would require out-of-state merchants to collect the sales levies that support state and local governments. It is equitable legislation. It should be approved.
The bill, introduced by Rep. William Delahunt, D-Mass., would reverse current policy that allows retailers like Amazon to sell and ship an item to a consumer without collecting sales tax. That practice is based on a 1992 U.S. Supreme Court ruling that said retailers are required to collect sales tax from out-of-state customers only if they have a physical presence – a warehouse or office, for example – in the purchaser’s state. The court added that the myriad state and local codes would make it too difficult to compute and collect sales taxes.
The ruling has given out-of-state retailers a big advantage over in-state brick-and-mortar stores. It allows Internet retailers to sell the same product as a local store at a lower aggregate cost. An example: Amazon, which generally offers free shipping on items costing more than $25, can ship a DVD player to a customer for its base price of, say, $199.95. The same DVD player purchased in a store in Hamilton County costs a consumer the base price, plus $18.50, the price of the county’s 9.25 percent sales tax. That’s not fair.
The proposed bill won’t resolve all the problems relating to Web-based retailing, but it will make things more equitable. There is, after all, no reason to have a law that in effect allows one merchant to have an unfair advantage over another when selling the same product. Besides, the argument that collecting the sales tax places an onerous burden on out-of-state retailers is moot. Sophisticated new software can quickly compute sales tax rates and prepare tax forms.
The current system allows some people to avoid taxes they fairly owe. That in turn robs states and municipalities of needed revenue. Savvy consumers who have taken advantage of the Web’s tax loophole might not like Rep. Delahunt’s bill, but fairness requires a system that treats all retailers and all purchasers as much alike as possible when it comes to taxes. Rep. Delahunt’s bill is a positive step in that direction.