Despite efforts in Congress to level the retail playing field, many internet merchants continue to have an 8.9 percent advantage over Washington state retailers — they don’t always collect sales tax from customers.
But a decision by Amazon, the giant internet retailer, might be just what’s needed to establish a system in which most (or at least more) consumers will pay their fair share of taxes.
The law now says internet retailers must collect sales tax only in states where they have a physical presence. That has led to a collection of far more sales tax than five years ago, but a great many online sellers find ways around the tax collections.
The law is only as good as its enforcement.
Last week Amazon voluntarily started collecting sales taxes on purchases in the last four states — Hawaii, Idaho, Maine and New Mexico — where it had not.
“The way we are consuming things is so different. Because of that, the states’ sales tax revenue is not keeping pace,” said Max Behlke, director of budget and tax policy for the National Conference of State Legislatures. “States have to modernize (sales taxes) to the 21st century. If they can’t collect sales taxes, it’ll mean higher state income taxes or property taxes.”
Brick-and-mortar retailers on Main Streets across America have complained — with good reason — about the unfair advantage held by their online rivals. Yet, various bills to require online retailers to collect all the different sales taxes have stalled in Congress, despite bipartisan support.
Ironically, Amazon was one of the leaders in the fight to keep online purchases tax free.
However, as Amazon has expanded its network of distribution sites so it can offer faster and faster deliveries, it has pretty much covered the nation. Given that, it’s willing to go all in on tax collections for all 45 states with some type of sales tax.
A lot of Amazon purchases will still go untaxed. Cyber shoppers are not required to pay sales tax when they buy from one of Amazon’s third-party vendors. Amazon says that nearly half the items it sells are from third-party vendors.
“Whatever a state is getting in sales tax from Amazon, it should probably be getting about twice that much,” Behlke said.
Reducing — or eliminating — that should be the next step. But doing so has to be done by Congress and it has to be done in a way that is reasonable for the mom-and-pop businesses selling online. The goal needs to be an equitable tax system.
Having Amazon going all in on tax collection is a step in the right direction.