Internet sales tax fairness needed now

Jul 13, 2012

Congress can easily help cash-strapped states collect millions in sales taxes from Internet sales. RIPR political analyst Scott MacKay explains why action is needed to protect Main Street retailers.

The sun is high; your vacation is nigh. What better way to while away a splendid July afternoon in the Ocean State than a trip to the shore with that book you’ve been meaning to get to.

With visions of the rhythmic dance of surf on sand stirring in your mind, you head off to the nearest bookstore in search of that great read. You stop at, say, Barrington Books or Providence’s Books on the Square, two friendly local booksellers. You are free to browse the bookshelves, ask the staff for suggestions and leaf through their reviews.

But you don’t buy anything. Instead you go online and order the book you picked out. You can even do this from your smart phone in the store.

With a click of an electronic mouse, you will save at least seven percent of the book’s cost. That’s because you won’t pay Rhode Island sales taxes on your Internet purchase. Had you bought the book at a local store you would have had the tax added to the purchase price.

Your smart shopping is costing our struggling state government money and making it infinitely harder for local stores, the lifeblood of our downtowns and Main Streets, to stay in business.

You can repeat this shopping bonanza for just about everything else you need for that relaxing day at the beach, from swim trunks to surfboards. What could be more unfair to small businesses than this system, which is the result, of course, of government rules.

Many states have approved legislation requiring online retailers to collect taxes for the states. But the retailers have refused, citing a 1992 U.S. Supreme Court decision that let online companies flout such laws as long as they didn’t have a physical presence, such as a warehouse or call center, in the state where the customer lived.

Consumers in many states, including Rhode Island, were technically liable for paying the sales taxes from online purchases. Yet as a practical matter, there is no way to enforce these laws because no state could hire enough revenue agents to chase down millions of small purchases. Amazon, the largest of the online retailers has been cutting deals to collect taxes in some states, including Texas, California, New Jersey and Virginia. But the company has passed over small states, which means Rhode Island has been left out.

There is some light at the end of this tunnel; change is in the offing. Amazon is finally coming around to the view long espoused by state governments and main street retailers. The company now supports legislation pending in Congress called the Main Street Fairness Act that would require online companies to collect sales taxes and send them to state coffers. (Amazon also collects sales and value added taxes in European countries). This measure is one of the few in today’s polarized Washington, D.C. that has bipartisan Senate support. Both Rhode Island senators, Democrats Jack Reed and Sheldon Whitehouse are sponsors of this approach.

For states in the recession-plagued economy, approval of the national Main Street Fairness legislation could mean as much as $23 billion in new revenue. The Rhode Island state tax division estimates that our state would harvest about $70 million in new sales tax money….enough to pay off Curt Schilling’s bad 38 Studios loans.

Or maybe the state could use the money to keep our mile after mile of sparkling state beaches clean and well-staffed. Enjoy your day at the beach. And the book.

Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:45 and 8:45. You can also follow his political reporting and analysis at our `On Politics’ blog at