A battle between Amazon.com and the state of Connecticut again points out the need for a federal action on collecting sales tax on online purchases.
It’s likely the last time you purchased something online you didn’t pay any sales tax. That’s because in Kansas unless the company has a physical presence in the state, the seller isn’t required to collect state or local sales taxes. Both the seller and the customers get the benefit of a final price that is lower than what the customer would pay if he or she walked into a brick-and-mortar store and bought the item.
That’s costing states serious money. For example, someone purchasing a $499 iPad at a store in Lawrence would pay an 8.85-percent sales tax, or an additional $44.16. Buy the same iPad online and the item costs $499, maybe with free shipping thrown in, and no sales tax. There is a definite advantage to the online seller.
Lawmakers in Connecticut, a state with close to the same population as Kansas, are requiring online sellers nationwide to collect state sales taxes from Connecticut residents under its new Internet tax law. The state could expect up to $152 million a year in additional revenue if all remote sellers comply with the new law, the Associated Press reported last week.
Some companies — including Amazon.com — are balking at Connecticut’s law. Amazon charges sales tax to Kansas customers because it has a distribution center in Coffeyville, but company officials say they don’t have to collect state sales taxes in Connecticut because the company doesn’t have a physical presence there.
Since June, at least six states have enacted laws similar to Connecticut’s, according to the National Conference of State Legislatures. NCSL estimates states are losing a combined $23 billion of sales taxes each year from online purchases, a figure that climbs annually as online shopping grows.
As more states make this a battleground, a national standard is needed. In July, the Main Street Fairness Act was introduced in the U.S. Senate. Supporters say the measure is designed to simplify and modernize sales tax collections to make it easier for online retailers, but it doesn’t provide the teeth to insure the collections are made.
This is an issue that should be settled in Congress. With a federal election on the horizon, and reluctance to create new taxes, expect feet dragging over the issue.
In the meantime, more states, including Kansas, should push for laws similar to Connecticut’s, and fight to make sure they are upheld.