Corman argues it’s a matter of compliance for online vendors, not new taxes
By Darwyyn Deyo | PA Independent
HARRISBURG — Desperate for cash, states across the nation have been ramping up efforts to get online retailers like Amazon.com to collect state sales tax.
But Pennsylvania lawmakers are pondering if they should go after the money through legislation, through regulation — or not at all.
The issue dates back to 1992, when the U.S. Supreme Court ruled that states could not force retailers to collect taxes for them unless the retailers had a physical presence, or “nexus,” in the state. So, if online retailers do not have “brick and mortar” retail sites located in the state, they are not required to collect state sales tax.
The problem for consumers is that if the online retailers do not collect the sales tax upfront, as is done at physical retail locations, individuals are required to voluntarily report the tax amount owed on their income taxes at the end of the year.
It is the same practice required of individuals who purchase goods out of state and, even having paid sales tax in the other state, are required to report the purchases on their income taxes and pay sales tax in Pennsylvania because the item is physically in the state.
Mike Stoll, spokesperson for state Rep. William Adolph, R-Delaware, chairman of the House Appropriations Committee, said the issue was not one legislators were looking to include in the 2011-2012 budget.
“I don’t know it’s something that would go in as part of the budget,” he said. “It’s an administrative angle separate from that.”
Stoll pointed to the budget hearing for the state Department of Revenue and said the agency was looking to use existing rules and regulations to better administer reporting of online sales tax.
State Sen. Jay Costa, D-Allegheny, minority leader, said the issue was less about individuals paying use taxes at the end of the year and more about a level playing field for small businesses.
“It puts Pennsylvania business, particularly small businesses, at a disadvantage,” said Costa. “In the sense you’ve got these Internet providers that are not really here in Pennsylvania that are undercutting the cost of products about 6 percent, so when you’ve got a ‘brick-and-mortar’ business and someone can go online and get that same product … that creates a significant disadvantage.”
Costa agreed, however, the burden of tax payment fell to the individual for online purchases, whereas physical businesses collect the sales tax at the point of purchase.
“This should not be about the purchaser,” said Costa. “It should be about small businesses competing on an equitable field.”
Amazon.com’s presence in Pennsylvania, in the form of warehouses and employees, seems to put a hole in its argument elsewhere that it does not exist in the state and therefore should not have to collect sales tax for the state.
“They have warehouses, and it is our belief they have a sufficient political nexus to collect the sales tax,” said Costa, “to require them to collect taxes and more importantly not advertise that they don’t collect it.”
Calls and emails to Amazon.com’s corporate headquarters in Seattle seeking comment were not returned.
Sharon Ward, executive director of the Pennsylvania Budget and Policy Center, said enforcing the online sales tax was a matter of fairness.
“Online retailers, particularly Amazon, have claimed they don’t have a physical presence in the state, therefore they’re not obligated to collect the sales tax, something called nexus,” said Ward. “What a number of states are doing is closing this loophole so that regardless of whether you purchase something that’s already taxable you pay essentially the same thing.”
The Pennsylvania Budget and Policy Center is a nonpartisan, statewide policy research project that provides independent analysis on state tax, budget, and related policy matters, with attention to the impact of current or proposed policies on working families, according to its website.
Ward said one study suggested the collected tax revenue from online sales could amount to $700 million in revenue, though both Ward and Stoll suggested the number might be higher in projections than in reality once the enforcement is executed.
The flip side of the enforcement argument, of course, is that online retailers could simply leave the state if online sales tax is enforced. An online coupon site, FatWallet.com, threatened to move from Illinois after Illinois Gov. Pat Quinn signed legislation requiring online vendors to collect state sales tax. The business is now moving to Wisconsin, in part because Illinois decided to increase corporate income taxes, as reported by WisconsinReporter.com.
State Sen. Jake Corman, R-Centre, chairman of the Senate Appropriations Committee, said the online sales tax collection was an issue that needed more attention.
“It’s been a growing problem, that you have businesses who invest in bricks-and-mortar, and people in Pennsylvania competing against businesses outside of Pennsylvania at an unfair level,” said Corman. “I think trying to collect sales tax for the consumer for his online business is extremely difficult, if not impossible.”
Even though the sales tax in Pennsylvania is 6 percent, given Gov. Tom Corbett’s pledge for a no-new-tax budget, a measure to enforce online sales tax collection could meet opposition in the Legislature.
“Anytime something looks like a tax increase, there’s always resistance,” said Corman. “I would characterize this as getting compliance so I think it’d be an education process. … It’s going to continue to dwindle our local sales tax or state sales tax.”
But the burden of compliance on the consumer would be very difficult, said the senator.
“I’m more interested in doing it at … Pennsylvania business, have them collect (sales tax),” he said.
