A goal long sought by most of the business community — leveling the sales-tax playing field between stores and online sellers — looks as if it will be achieved following developments this past week.
The week started with the Obama administration declaring its support for a Senate bill to give states the authority to collect sales tax on Internet purchases made by their residents.
The White House said it was motivated by overwhelming support for the change by governors and mayors, who see tax-free online sales as lost government revenue.
Momentum for the change has been building for a least a few years, as business organizations and major retailers such as Wal-Mart and Best Buy lobbied to end the competitive advantage of online retailers.
Even Amazon, one of the biggest retailers online, has prepared for the change by reaching deals with several states to start collecting sales tax.
On Thursday, the Senate voted 63 to 30 to hold the final passage vote on the Marketplace Fairness Act on May 6.
For the owner of, say, a candle shop that has to charge New Jersey’s 7 percent sales tax, requiring the same sales tax for someone in the state buying the same candles online seems like a no-brainer.
But the nation historically has been wary of letting states do anything to impede interstate commerce. Until the 1950s, states weren’t allowed to tax items in interstate commerce at all.
When it was allowed, the law and subsequent interpretation by the U.S. Supreme Court in 1977 specified that such taxes could be applied only to businesses with a substantial presence in the taxing state.
That’s how matters stood as the Internet era dawned and developed, causing online retailers to rigorously avoid having a “substantial presence” of property or employees in states with lots of buyers and a sales tax they weren’t collecting.
Retailers with physical stores have become a bit more sanguine about the lack of online sales tax, because these days most of them are online sellers, too.
But, meanwhile, the self interest of another group has come into play: state and local governments, which see the current situation as losing out on about $3 billion a year in uncollected tax revenue.
Sure, states can still require their residents to pay an equivalent “use tax,” as New Jersey does, putting a line each year on the state tax return urging filers to declare their untaxed online purchases and pay up. Nationwide, taxpayer compliance with voluntary use taxes is between minimal and nonexistent.
The largest retailers, even those online, such as Amazon, have found another reason to support the Marketplace Fairness Act.
They figure that requiring the collection of the sales taxes specified by about 9,600 state and local jurisdictions nationwide will be far more challenging for their little competitors than for themselves, with their robust business information systems.
That has left eBay as the biggest foe of the bill left standing, worried about the legion of small sellers who make up its vast bazaar and provide the bulk of its revenues.
The bill as currently written would require sales-tax collection by online sellers with $1 million a year in sales, which eBay would like to see raised to $10 million a year.
Even though there probably will be some resistance to the bill in the House, the fundamental fairness of treating all significant retailers the same should be enough to make it law.
Note, though, that fairness apparently only matters enough when there’s $3 billion more a year in tax revenue for governments.
Off the bottom
Speaking of taxes, this will sound like a backhanded compliment, but New Jersey has only the seventh largest income-tax collection per capita in the nation, the Tax Foundation said the past week.
New York state — no surprise there — has the highest, squeezing $1,864 in income tax out of every resident on average.
Connecticut, New Jersey’s peer in many ways, is second highest at $1,808.
We’re at a mere $1,205.
Seven states have no income tax, and of those that do, Arizona’s per capita average of $444 was the lowest.
Now, about those property taxes in New Jersey ...
Contact Kevin Post: