July 24, 2012, 2:24 PM — Legislation that would allow U.S. states to collect sales tax from online sellers is good for consumers, because it would help them pay the taxes they already owe, supporters said Tuesday.
Many people who buy products online don't know that they're supposed to pay sales tax to their states, some supporters of the Marketplace Equity Act said during a hearing on the bill before the U.S. House of Representatives Judiciary Committee. This nonpayment of sales taxes owed in 46 states exposes consumers to potential action by state tax collectors, said Representative Steve Womack, an Arkansas Republican and sponsor of the bill.
Currently, online retailers that have no physical presence in a state don't have to collect sales tax from residents. That situation is "bad for retailers, bad for cities, counties and states who levy sales taxes and bad for consumers, who are unwittingly exposed to potentially incriminating audit issues," Womack told the committee.
The bill, which would require online retailers to collect sales taxes from customers, would not impose a new tax, supporters argued. About 1 percent of online shoppers now send sales tax for online purchases to their state governments.
"We're trying to help a nation of people right now who are breaking the law by not paying their taxes," said Governor Bill Haslam of Tennessee, a Republican.
Some lawmakers disagreed with supporters' assertion that the legislation creates no new taxes.
Whether the bill would create a new tax is "in the eye of the beholder," said Joseph Henchman, vice president of legal and state projects at the Tax Foundation, a tax research group. "It's an existing tax that's not paid by the vast majority of people who should be paying it," he said. "I think a lot of people will see it as a new tax."
Representative Hank Johnson, a Georgia Democrat, said he supports legislation to equalize the taxes between bricks-and-mortar and online retailers, but he expressed surprise that many anti-tax Republicans support the Marketplace Equity Act. The bill would give states new authority to impose taxes, he said.
"It's a new tax for those who purchase their goods on the Internet," he said.
Haslam and other supporters of the bill argued that the current system, set up by a 1992 Supreme Court ruling, is unfair to Main Street retailers that have to collect sales taxes and to state and local governments that are missing out on billions of dollars in revenue each year. Tennessee loses about US$400 million a year because it cannot collect sales tax from out-of-state websites, Haslam said.