Outside editorial: Online retailers need to collect sales taxes

Posted: Monday, July 26, 2010

The following editorial first appeared in the San Jose Mercury News:

Annual online sales across the United States will account for nearly $150 billion in 2010. But cash-strapped states won't get more than a fraction of the $18.6 billion of sales tax they should be collecting.

Congress and state legislatures need to find a way to end online retailers' unfair advantage over brick-and-mortar businesses - and to reap a fair share of revenue, since so many states rely heavily on sales taxes to balance their budgets.

California lawmakers are considering a bill that would require retailers that do not collect the tax directly to send the state a list of purchasers. It's a clunky fix, since tracking people down will cost money, but it's a start.

A better solution would be for Congress to pass Rep. Bill Delahunt's "Main Street Fairness Act." The Massachusetts Democrat's bill would allow participating states to streamline their sales tax systems to remove the excuse that out-of-state retailers now use to avoid collection: The fact that there are some 7,500 tax jurisdictions in the country with different tax rates.

We have the technology today to design software to calculate the appropriate amount of sales tax for any jurisdiction, but a simpler system is likely to get results more quickly. Supporters of Delahunt's bill have convinced 23 states to join a coalition for this simplified system.

This would not be a new tax. Anyone who makes an out-of-state purchase, online or otherwise, is supposed to keep track of it and then pay the appropriate sales tax along with income taxes.

Consumers enjoy the cheaper prices for products online. But local businesses that create jobs and generate revenue for our communities deserve to be on an equal footing with their online competitors as a matter of principle. And we all will benefit from the additional tax revenues that pay for public safety, transportation projects and other services.

It's been 15 years since Jeff Bezos launched Amazon.com and introduced large-scale e-commerce to the world. When online companies like his were startups, it made sense to allow them a grace period on collecting sales taxes to promote a new industry. A case still can be made that small Web-based companies with sales of less than $100,000 should be exempt from collecting sales taxes.

But too many large online and catalog businesses are enabling their customers to be tax cheats.

If California had collected online tax revenues for the past decade, it would have an additional $10 billion at its disposal today, reducing its deficit by more than half. The Golden State is in no position to let another dollar of potential revenue go uncollected.

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