Internet tax is uncollected one
Published: Thursday, December 5th, 2013
People shop on the internet for a number of reasons, but one of them is that there is no sales tax added to their purchases. We just passed what has become known as Cyber Monday where many e-tailers like Amazon.com will benefit from those shopping from the convenience of home. The giant e-retailer is one that does not add state sales tax to any of their transactions.
We believe it is time to level the playing field for local storefront retailers who are required to collect sales tax on all their transactions. Those who say this is just another tax they have to pay should realize that it is really an uncollected sales tax they would be paying. By law, those who shop online are required to pay a sales tax to their respective states, but few, if any, do because there is no mechanism now to track these online sales.
According to a recent Chicago Tribune editorial, in 2012 an estimated $11.4 billion in sales tax revenue owed for online purchases in the country went uncollected. Customers who are not charged sales tax for their online purchases are supposed to pay it to their state at tax time. In reality, we all know this does not happen.
Federal legislation, rather than state-by-state, seems to be the only solution to this situation. Earlier this year the U.S. Senate did pass the Marketplace Fairness Act which has gone nowhere in the U.S. House. The Senate legislation would exempt internet businesses that have less than $1 million annual out-of-state sales, which is about 43 percent of online transactions. Some House members want to see this annual sales figure raised to $5 million, saying that compliance would be too difficult for smaller online vendors.
Then there are some House members who say they simply cannot support the bill because they see it as a tax increase. In reality, the law would provide a means to collect taxes that are owed on internet sales but not paid. There really isn’t a need to exempt any size online retailers from collecting sales tax because there is technology available today that would simply plug in the sales tax amount to be added from any state in the country.
Right now, the way it stands is that there is not a level playing field for mortar and brick stores required to collect sales tax and cyber retailers who are not mandated to collect these same sales taxes. The internet retailers have an obvious sales advantage by not being required to collect these taxes.
States like South Dakota and cities like Custer and Hill City are losing out on a substantial amount of sales tax revenue each year. South Dakota Rep. Kristi Noem wouldn’t say how she would vote if the issue does reach the House floor. Nevertheless, she said, the issue is about fairness. She added that she thinks small businesses in South Dakota can compete with large, online-only retailers if there is “a level playing field.”
Nobody wants to pay more taxes, but in this case, it really is about leveling the playing field for storefront businesses in the country. They have lots of overhead costs to pay that the internet retailers do not. In addition, their prices are from four to six percent higher due to sales taxes that must be collected on their transactions.
As Rep. Noem said, it’s all about fairness. It’s time for Congress to act and level the playing field for all business transactions. We hope she would support this measure.
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