US cities and counties lose out without online sales tax

June 25, 2013 — 1 Comment

US cities and counties lose out without online sales tax

The non-partisan United States Conference of Mayors reported on Friday that cities and counties across the country would be losing out on $1.7 billion in new revenue this year because Congress has yet to pass the bill that allows states to tax Internet sales.

From 2011 through 2013, “the additional revenue would have totaled $4.5 billion”, according to economic research group IHS Global Insight, “which was commissioned to produce the report.” The Department of Commerce also predicts that by 2023 nearly all shopping will take place online.

Currently, states can only tax Internet sales of companies who have a physical presence within their borders. Under a 1992 Supreme Court ruling, this means that online retailers can charge a sales tax in some states but not in others.

The Marketplace Fairness Act (MFA) would exempt those online retailers who make less than $1 million in nationwide sales from collecting taxes.

As seen in one of our previous articles, U.S. House to Determine Fate of Online Sales Tax Bill, the U.S. Senate voted overwhelmingly to approve a measure allowing states to collect sales tax from online purchases. In a vote that split party lines, the MFA passed by a margin of 69-27. The bill would allow states to collect a sales tax from out out-of-state online retailers.

States that amass the most sales taxes have said their budgets are hurting. Fitch Ratings estimated that states are “losing $11 billion annually without the online tax.”

In 2012, “New York City had the greatest loss, of $200 million. Phoenix and Chicago followed with $18 million each. Mesa, Arizona, with an annual budget of $325 million, has lost out on $14 million over the last three years, the study found.”

“The number may not be large,” Mesa Mayor Scott Smith said, “but Internet commerce will continue to grow and Congress must pass the legislation to ‘stop the bleeding’.”

The bill has been put on the back-burner but the battle on the online sales tax is starting heat up again in the House of Representatives.

Where is the legislation now?

21 Senate Republicans voted for the new legislation and on the other hand, 22 opposed the tax. The bill proves just as a decisive in the House and at the state level.

One on side, the governors of Virginia, Wisconsin, Maine and Iowa are showing voters the benefits of passing the online sales tax legislation.

“It’s critical to our capital needs,” Virginia Transportation Secretary Sean Connaughton told POLITICO. “All the funds … are dedicated to our construction fund … and we’re talking about, for Virginia, the potential of $150 million a year.”

On the other side, Attorney General of Montana, Tim Fox, is leading the charge with his newly created coalition, which argues that the legislation is unconstitutional.

“We’re about growing this economy,” GOP Rep. Steve Daines, Montana’s sole member of the House, told POLITICO. “Given these tough economic times, we don’t want to put a tax increase on these small startups.”

Despite great support from fellow Virginia statesmen, Governor McDonnell, House Judiciary Chairman, Robert Goodlatte (R.-VA) has taken a slower pace with the bill. He does not oppose the Senate bill but feels as though it needs alterations.

No concrete adjustments have been placed on the table yet but “those principles are expected to address the small-seller exemption — which could prove vital in earning Republican support. The exemption in the Senate bill gives businesses with less than $1 million in sales a reprieve from the tax — a threshold some Republicans in the House want to see increased.”

To address the argument that small businesses lose out with this bill, David Quam, director of federal relations at the National Governors Association, which is supporting the bill, argues “the measure inherently supports small businesses that lose money when consumers buy products online to avoid a sales tax.”

As noted, many jurisdictions are currently losing revenue without this legislation. This summer shall be interesting as governors cement their positions on this legislation and either push or dissuade their House counterparts to pass the act.

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  1. Are you paying the iTunes and digital downloads tax? « The Joy of Tax Law - July 9, 2013

    […] US cities and Counties lose out without online sales tax (joyoftaxlaw.com) […]

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