As Internet sales have soared in recent years, many online retailers and consumers have enjoyed a whopping subsidy — worth about $23 billion per year. The handout comes via the lack of sales tax applied to purchases from online retailers who don’t have a physical presence in the state they’re shipping to.
The president and a majority of senators are finally taking a serious look at legislation that would allow — but not force — states to collect sales tax on out-of-state Internet sales to their residents. It’s legislation worthy of approval.
Brick and mortar retailers, including giants such as Wal-Mart, support the sales tax. They’ve long argued they are at a disadvantage as shoppers browse their stores to look at and hold products but then go online to buy them from other sources to avoid the sales tax. (Technically, consumers are supposed to voluntarily pay the sales tax when they file their returns, but with enforcement nearly impossible almost no one does.)
But it’s not just stores with buildings that support the online sales tax. Internet giant Amazon, for example, backs the legislation.
Opponents of online sales tax collections argue it would put smaller online retailers at a competitive disadvantage because they wouldn’t have the resources to track and apply the various different state sales taxes. But portraying this debate as one of big corporations against small businesses is misleading. Retailers with less than $1 million in annual sales would be exempt from sales taxes. Under the legislation states would be required to simplify their tax system before requiring out-of-state retailers to collect it, and common software can easily keep track of the various state tax rates.
Finally, the bill would not require states to collect the tax. Those states that have no sales tax could continue to ignore sales tax collections for their residents.
The sales tax exemption for online retailers made sense when the industry was in its infancy. But with online sales at $225 billion a year — accounting for more than 5 percent of all retail sales in the nation — the argument loses its impact. For the sake of fairness and to provide states with sales tax revenue they should be receiving, Congress should pass the legislation.