As Congress deals with the swirling array of money problems that could trigger the nation’s tumble over the fiscal cliff, Washington state Gov. Chris Gregoire is aiming to use the opportunity to close a loophole that allows online retailers to escape paying state sales tax.
Gregoire, a Democrat, and Tennessee Gov. Bill Haslam, a Repu blican, want Congress to approve legislation to force online retailers to collect state and local taxes on all sales. Currently, sales tax must be collected only if the online retailer has a physical presence — at least one store — in the state.
That’s not fair to the online retailers who have stores nor is it fair to any merchant. The taxes collected should be the same for every business and every citizen.
But to this point, since few states have only sales tax as their major revenue source, Congress has not been too concerned. They saw no upside in spreading tax pain when it didn’t directly benefit their constituents.
Now is the time to make a strong case for taxing all Internet purchases because Congress must make some tax changes (as well as some budget cuts). Finding new revenue is critical.
Gregoire said she will approach this issue as a matter of fairness, helping states collect taxes that are due and helping local businesses compete on a level playing field with online counterparts.
“I will tell you that our companies in this state are suffering mightily because of this fundamental unfairness,” Gregoire said.
Gregoire is correct. Brick-and-motar merchants are losing business to Internet merchants who can sell the same product for close to a 9 percent no-tax discount.
Collecting sales tax from Internet retailers benefits the public because many state governments would, collectively across the country, be infused with billions of dollars to fund schools, law enforcement and other critical needs.
The current tax loophole hurts Walla Walla, College Place and other local governments as well as Washington state. It has been estimated this change would result in $440 million to additional revenue annually in Washington state and local governments.
Gregoire is wise to use this opportunity to bring about the needed change in the tax law.