Our View: Local retailers operating at disadvantage
Now that we are through another busy holiday shopping period, there is an online loophole that needs to be addressed for a number of reasons. This year, the loophole cost the state more than $150 million in sales taxes. In addition, it is penalizing retailers who set up and do business in the state and are obligated to collect sales tax from customers.
It is up to Congress to fix this unfairness. The quick and easy solution would be the passage of the Marketplace Fairness/Equity Acts. It would require online retailers to collect sales taxes across state lines. The acts would restore fairness while allowing states to collect needed revenue.
States currently lack the tools to enforce sales tax collections. A person in Hudson, or anywhere in Wisconsin, can sit at a computer and purchase a Christmas gift from an online retailer; almost always, no sales tax is charged. What many people don't realize is that they still owe the sales tax, but under current law, you are expected to report it on your state income tax form. Most people either don't know they should be paying, or just ignore the requirement.
States across the country lose an estimated $23 billion through this gap. U.S. Sen. Mike Enzi, a Wyoming Republican, calls the problem "the most overlooked tax loophole."
According to the state Department of Revenue, the Badger state's $150 million loss includes $62 million from online sales by out-of-state retailers to Wisconsin buyers, according to the state Department of Revenue. The remainder is from other remote seller-to-buyer commerce.
It's bad enough that the state is losing all these funds, but consider the unfairness of having local store owners attempting to compete with out-of-state online retailers. The poor local store owner is required to add sales tax to the transaction, while the online competitors can sell without the tax.
The current situation goes back to a 1992 Supreme Court ruling. The court said that businesses without a substantial physical presence in a state are not required to collect sales taxes for that state. For example, how could a national online retailer, be expected to figure sales taxes for the nearly thousands of different sales tax jurisdictions nationwide? State rates differ, county rates differ, city rates differ and many states exempt certain items. Minnesota, for instance does not charge sales tax on clothing.
Today, however, the insurmountable problem of 1992 can be easily solved with the correct software. Today the collection issue can be easily resolved with software that can calculate the correct tax rate based on the location of the buyer.
An attempt to attach the legislation to a defense appropriations bill failed late last year. The act, however, deserves an "up or down" vote on its own. Wisconsin's senators and representatives should stand behind the bill that would raise money for the state and give local retailers a level playing field.