Support grows for collection of online sales tax

Gregoire’s budget proposal suggests state could raise $384 million during coming biennium

Staff writerDecember 21, 2012 

WASHINGTON — At The Regulator Bookshop in Durham, N.C., co-owner Tom Campbell says he is losing business as customers come in to photograph his books or jot down notes, conducting their research before they buy the books online to avoid a sales tax.

But he says Congress could end the practice by giving states the option of forcing online retailers to collect sales taxes from their customers.

“Places like Amazon are literally getting a free ride with the sales tax issue — because our customers pay the sales tax that goes toward maintaining the roads that their delivery trucks drive on,” Campbell said in an interview. “And if that’s not a free ride, I don’t know what is.”

The argument has picked up steam on Capitol Hill and in statehouses across the nation, with governors eyeing an online sales tax as a way to help cash-strapped states raise billions of dollars.

Backers say it would help equalize competition among all retailers, particularly as online sellers become bigger players in world trade. But critics say it would be wrong to let states impose yet another tax on savvy consumers who have found an easy and popular way to save a few bucks.

In a letter to congressional leaders last week, the bipartisan National Governors Association said that collecting the tax would bring $23 billion in new revenue to the states, serving as a stimulus to grow the economy.

Democratic Gov. Chris Gregoire, a leading advocate, cited the plan in the state budget proposal she released this week, estimating the state could raise $384 million for the 2013-15 budget and $631 million in the following two years. Gregoire proposed dedicating the money toward meeting the obligations of a state Supreme Court order to increase education funding.

She said that supporters of online sales taxes have growing momentum on their side, noting that even Amazon has lined up behind the idea. And she called it “our single best opportunity to bring this fairness issue to a close.”

“I’m not down on the Internet — I shop on the Internet myself — but I want fairness,” Gregoire said in an interview. And if Congress does not allow states to collect the tax, she said, “it’s going to continue to erode the ability of the brick-and-mortar businesses in our state to stay in business.”

In the letter, signed by Gregoire and Republican Gov. Bill Haslam of Tennessee, the governors noted that 2012 online sales during the holiday season are up by 14 percent over last year and that sales on “Cyber Monday” this year — the Monday after Thanksgiving, the online equivalent of “Black Friday” — hit $1.47 billion, a record high. And they complained that Congress is giving online sellers “an unwarranted yet growing subsidy” by letting them escape the sales tax.

The issue has a long history.

In 1992, the Supreme Court ruled that retailers don’t have to collect sales taxes for out-of-state shipments if they don’t have a physical presence in the state.

But the high court left the door open for Congress to establish new rules.

In November 2011, three senators — Democrat Dick Durbin of Illinois and Republicans Mike Enzi of Wyoming and Lamar Alexander of Tennessee — introduced the Marketplace Fairness Act, which would grant the taxing authority to the states.

But there’s plenty of opposition.

S.T. Karnick, director of research for the Chicago-based Heartland Institute, which bills itself as a free-market think tank, called the proposal “just another tax hike to prop up big government” after Congress spent too much money in the past decade.

At the hearing of the Senate Commerce, Science and Transportation Committee in August, South Carolina Republican Sen. Jim DeMint said retailers use different business models with different cost structures and that Congress shouldn’t take “an unprecedented action” to make them uniform.

“We’ve got a precedent that we’re establishing here that’s going to open a door that I think all of us are going to regret,” he said.

Rob Hotakainen: 202-383-0009

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