More than $20 billion in sales taxes go uncollected by out-of-state online merchants each year, leading more than 21 states to simplify how they collect taxes in hopes of recovering that lost revenue.
Congress is considering bills that would “level the playing field” by allowing states to require all online merchants doing business in that state to collect sales tax. The House Judiciary Committee held Tuesday a hearing on the Marketplace Equity Act of 2011, although it is unclear whether the bill has a chance of coming to the floor in the final months of this election year.
The National Retail Federation, which supports the bill, says online sales taxes would help fight the growing problem of “showrooming,” in which a customer goes to a store, checks out a product and then buys it online to save money, including tax.
Some legislators decried the proposal, touting it as an unnecessary additional tax, while others saw it as a much-needed way to increase state revenue in a time when many are struggling with budget shortages.
Retailers are similarly divided, citing concerns about losing their competitive edge in areas where they were once able to sell products, free of any state sales tax
This issue has been a contentious one for the better part of the past two decades, and has only intensified as e-commerce continues to grow. The Milwaukee-Wisconsin Journal Sentinel pointed to how “state sales tax receipts haven’t kept up with the growth of online retailing over the last decade,” and cited a U.S Supreme Court ruling from the early 1990s that “has made it difficult” to collect taxes on online sales.
The Journal Sentinel reported that this has cost the state of Wisconsin alone close to $157 million in revenue in 2011.