Kitchen Table Politics

11:09 am May 23rd, 2013

By Sharon Fisher

Congress is voting on the Marketplace Fairness Act, which some people are calling an Internet sales tax. That’s not really accurate, and could be confusing as well. This is not a new tax — just a new, more reliable way of collecting an existing one.

When you buy something at a store in Idaho, you pay sales tax on it. What you may not know, though, is that when you buy something on the Internet, you’re supposed to pay sales tax on it too. However, most Internet companies aren’t obliged to collect tax on their sales the way regular stores are. Instead, the customer has to keep track of their online purchases and at the end of the year, pay a “use tax” on their Idaho income tax form. It’s like when you go to Ontario to buy a car and still have to pay use tax in Idaho when you bring it into the state.

Based on federal law, the only Internet stores that have to collect Idaho sales tax are ones with a presence in Idaho – and sometimes not even then. For example, when Cabela’s opened its retail stores in Boise and in Post Falls, it said they were a different part of the company from its catalogues, and because the catalogue part didn’t have a presence in Idaho, it wasn’t required to collect the tax.

If you haven’t been calculating and paying your use tax every year, you’re breaking the law. And you have a lot of company – it’s estimated that Idaho loses as much as $35 million a year on uncollected use taxes. And this is well known; some Internet companies even promote the lack of a sales tax, when in reality there is a sales tax – it’s just not their problem to collect it. In addition, brick-and-mortar stores inside Idaho are at an disadvantage –they do have to collect the sales tax, so their customers have to pay 6% more than they would to buy the same product online.

Both the state and the federal government need to do something for this to change and have Internet companies responsible for collecting sales tax the same way brick-and-mortar stores do. First, the federal government has to change its law that requires a physical presence in a state to collect sales tax there. This is what the Marketplace Fairness Act, which the Senate just passed, does. (Senators Risch and Crapo voted against it, partly because they felt the $1 million exemption for small businesses was too low.)

Second, a number of states, 24 by now, have joined the “Streamlined Sales Tax” initiative, which is intended to make it easier for merchants to collect and distribute those sales taxes once the federal government changes its part of the law. When the Marketplace Fairness Act passes, the states that have joined the initiative can start receiving sales tax from those

Then-Governor Dirk Kempthorne added Idaho to the Streamlined Sales Tax initiative in 2005 as an executive order. However, executive orders typically expire after four years, unless they’re ratified by the Legislature. Several attempts have been made to do this through the Legislature, and each time, it’s been shot down in the House Revenue and Taxation Committee. So even if the House goes on to pass the Marketplace Fairness Act – which a lot of people doubt is going to happen anyway – Idaho wouldn’t be able to start receiving this tax from Internet vendors until it joins the organization.

Nobody likes paying more money, but this is not new money – just money that you should have been paying all along.



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Posted by on May 23, 2013. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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