At one time, it made sense to encourage the growth of infant online companies by not requiring them to collect sales taxes.
That time has long since passed.
Internet sales last year in the U.S. totaled a whopping $226 billion, according to government estimates.
Internet-based companies have become brawny competitors to local stores. The fact that shoppers are not required to pay sales taxes at the same time they pay for online purchases means the online companies have a decided advantage.
U.S. Sen. Dick Durbin, D-Ill., introduced the Marketplace Fairness Act last year. The bill is designed to level the sales tax playing field by requiring online businesses with more than $1 million in annual sales to step up to the plate, collect taxes on those sales, and remit those tax receipts to states where the shoppers live.
We believe online businesses have reached the point where they should shoulder the responsibility of collecting sales taxes, just as their brick-and-mortar counterparts have always done.
Durbin’s bill passed the U.S. Senate last week, 69-27. Its fate is now up to the House.
Some critics of the Marketplace Fairness Act regard it as a tax increase.
Actually, in many states the payment of sales taxes on online purchases is left up to individual shoppers to remit what they owe with their annual income tax forms. Few people do this, so you could consider Durbin’s bill as a way to force sales tax scofflaws to pay up.
Other critics say the tax would be exceedingly complex to administer. Again, not true. States would be required to provide free computer software to help online businesses figure out sales taxes owed, based on where shoppers live.
In addition, states must designate a single entity to receive Internet sales tax revenue. That way, online businesses wouldn’t have to send tax receipts to myriad governmental entities, including cities and counties, across each state.
If enacted into law, the act should reduce the practice of “showrooming,” where shoppers check out products in local stores, then scurry to the Internet to buy the same items without paying sales tax.
“It’s about the way commerce has changed America,” Durbin said.
“Bookstores, stores that sell running shoes, bicycles and appliances are at a distinct disadvantage. They’ve become showrooms.”
Taxing bodies, including state government, could use the lost money. The state of Illinois estimated it loses about $153 million a year in uncollected sales taxes from online sales.
Online commerce is well past its infancy. It’s a big boy now and should be treated as such.
We urge the House to pass the Marketplace Fairness Act and the president to sign it.