Other Views on the Internet tax: Yes and No

On consecutive days this week, the Tribune published opposing views on the proposed Internet tax that the Michigan Legislature is considering. Here's both of the opinion pieces.
May 15, 2013

 

From the Mining Journal (Marquette): Taxes should be collected for online sales

If Michigan lawmakers are successful in passing measures to collect sales tax from online purchases, it could be the beginning of some major relief for small businesses around Superiorland — and for the cash-strapped state government.

Bills with backing from both Democrats and Republicans are under discussion in the state House. The proposed legislation would tap into the estimated $460 million in unpaid taxes racked up every year from online sales.

Giant e-tailers would have to begin charging sales tax if they have distribution centers or warehouses in Michigan or are affiliated with in-state businesses linking customers to the retailers' sites.

We agree with the Michigan Retailers Association, which backs these bills. We're confident new laws will bring in additional tax revenue

More importantly, the new rules will level the playing field for local businesses that must, by law, collect sales taxes.

The current tax system gives an unfair advantage to online retailers who don't collect the tax. It's essentially an automatic 6 percent discount — difficult or impossible for a brick-and-mortar businesses to match.

On their state tax returns, consumers are supposed to declare all purchases made over the phone or online and pay a 6 percent use tax. Compliance with this law is low.

Michigan's proposed law would capture some of the online sales taxes owed, but there are loopholes. It only applies to Internet retailers with ties to the state. And those stores could cut relationships with Michigan in order to get around the law, as has already happened in some other state's which have passed similar measures. Federal action is the real key.

The U.S. Senate passed legislation last week that would give states power to force online retailers to collect state and local taxes.

It's unclear whether the U.S. House will take up the online tax measure now that it's cleared the Senate. We urge them to do so quickly.

For now, the proposed Michigan approach is the best option.

We're not saying state or federal governments should raise taxes — or penalize anyone. We're just advocating a more level playing field for all retailers, physical and virtual.

Absent action from Washington, Michigan needs to act to protect the state's small businesses.

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From The Detroit News: Don't sign on to Internet tax

Citing a new era of Internet commerce, big business and government have teamed to fast-track Senate legislation that would allow states to collect sales taxes on companies that reside outside their borders.

But if the Internet is a new marketplace, the idea of taxing interstate commerce is not.

Like state efforts to tax out-of-state mail order companies in years past, the Marketplace Fairness Act — the Internet sales tax — is another ill-advised attempt by revenue-hungry governments to go fishing for more income that will stifle business development and consumer choice. If the Senate doesn't derail this unwieldy behemoth, the House should.

In the 1992 Supreme Court case Quill Corp. v. North Dakota, the court ruled it unconstitutional (taxation without representation) for states to charge in-state sales tax on transactions involving out-of-state mail order companies. However, the court did leave the door open for a federal solution under Congress' Commerce Clause power over interstate commerce.

Fast-forward 20 years, and here comes a bipartisan Senate majority's Marketplace Fairness Act.

The legislation got its name when "big box" retailers claimed to be at an unfair disadvantage because mail-order companies — Internet sellers, the latest threat — don't have to pay taxes and therefore have a competitive price advantage.

Actually, that's not true. Companies with a significant online presence must pay sales taxes in the states in which they have physical storefronts.

But how is it fair that the bill forces online companies, and not brick and mortar operations, to pay sales taxes in all 9,600 state and local jurisdictions that levy a tax?

Imagine, for example, an Ann Arbor-based seller of University of Michigan paraphernalia that has buyers in all 50 states. If that small business does $1 million a year in sales (the Senate bill's tax threshold) it "would now be on the hook for filing tax returns in all 46 states that have a sales tax," notes Curtis Dubay, a senior tax analyst for the Heritage Foundation. That's potentially 46 state audits. That's an administrative nightmare.

This nightmare would be compounded by states that allow local taxing authority. While our Ann Arbor-based e-retailer pays only Michigan's 6 percent sales tax, it would have to comply with countless tax authorities in, say, Illinois, where every jurisdiction from Chicago to Cook County to the state can levy taxes.

Beware the law of unintended consequences. Instead of leveling the playing field, the Internet sales tax may force small businesses to leave the playing field altogether. Meanwhile, state tax departments hungry for new revenue would grow, employing tax auditors to hunt down businesses around the country.

Big corporations like Wal-Mart (sales: $450 billion) are backing the push for new revenue, since they don't sweat e-tax collection that would burden smaller competitors. Also supporting the bill is Internet giant Amazon (sales: $60 billion), which coincidentally sells its own tax compliance software to other merchants.

"Big e-retailers like Wal-Mart and Amazon employ armies of accountants to collect sales taxes, answer audits, and so on," explained Steve DiBianco of NetChoice, a trade group representing companies like eBay, Yahoo! and small e-retailers that are vehemently opposed to the Senate bill.

Governments are better served by attracting Internet businesses rather than concocting new taxing schemes, but critics also propose more modest solutions for collecting taxes as commerce shifts to the Internet. Sen. Ron Wyden, D-Ore., for example, supports regional compacts where states with similar tax structures help collect one another's taxes.

Such alternatives are worth studying. The Marketplace Fairness Act is not the answer.

 

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