There’s something plainly wrong with a tax code that encourages a consumer to browse in a local store, eyeball merchandise, try it on in some cases – then leave the shop to buy the item online for less. Adding insult to the spurned merchant’s injury, the online shopper often gets a discount by not paying any sales tax.
The national Marketplace Fairness Act would fix this problem by requiring online or remote sellers to collect sales taxes in states that are part of a national sales tax compact. But our Congress is endlessly creative when it comes to finding ways to dither on tax reform.
This is an idea supported by most members of our state’s delegation in the U.S. House and Senate (our two senators voted for it in 2013). Even Amazon, the ever-growing commercial behemoth based in Seattle, supports the federal change. But the bipartisan bill that passed the U.S. Senate two years ago is stuck in traffic, to put it politely.
Against the backdrop of federal inaction it makes sense for Washington’s Legislature to set wheels in motion to get the job done alone. There is a legal question whether Washington can actually move ahead to accomplish this, but House Bill 2224 would at the least put the state on a path to finding out if it can collect the tax on its own.
Sponsored by Democratic Rep. Reuven Carlyle of Seattle, the measure goes beyond clearly established federal law that lets a state collect taxes from a business that has a physical presence in a state – such as banks that make loans to consumers or firms that have branches in the state. Less clear is e-commerce through which a national online firm often bypass the tax.
In recognition of the unfairness in this situation, U.S. Supreme Court Justice Anthony Kennedy recently invited a challenge to the current federal law.
Carlyle’s bill would do that by saying a company with an “economic nexus,” or significant connection, to Washington is a basis for the company to collect taxes on sales into the state.
Under the bill, out-of-state sellers would be required to collect tax from Washington customers if sales were at least $267,000 in a year. Another trigger is whether a business had more than $53,000 of payroll or property or at least 25 percent of its payroll, property or income coming from Washington.
Gary Chandler, top lobbyist for the Association of Washington Business, told our editorial board last week that the state should pursue collection of taxes on such sales. Indeed many retailers in traditional bricks-and-mortar businesses are solidly behind this change in national law.
Tax losses under the current system are pegged at roughly $400 million for Washington and its local governments, which means that payers of other state taxes are in effect subsidizing those who evade this tax.
The bill captures only a portion of that. Under state Revenue Department projections, tax collections might reach $106 million a year for the state and $37 million a year for local governments – after four years.
This legislation may be a long term strategy more than a solution to the state’s short-term revenue need. Rep. Drew Stokesbary, R-Auburn, questions the reliance on revenue that is not assured.
One top revenue agency official said odds are just 50-50 whether the state would prevail in court.
The wise course is to pass the bill, test the legal waters, and book revenue when it’s actually going to land in the treasury.