Policy: Budgets & Deficits

Conservatives split over Internet taxes

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Congress,Taxes,Governor,PennAve,Tim Mak,Budgets and Deficits,Law,Technology,Nikki Haley

Republicans are split over the wisdom of a law that would allow sales taxes to be applied to online sales — and that split is most pronounced between politicians who work in Washington and those who work at the state level.

Internet retailers currently are not expected to collect sales taxes from customers in states where they have no physical presence. Customers are technically still liable for the taxes on the purchases, but compliance is low. Brick-and-mortar stores have long complained that the situation gives online retailers a competitive advantage.

The Marketplace Fairness Act, which passed the Senate in May, would address the issue by allowing states to require online retailers to collect state sales taxes.

Supporters and opponents of the bill agree that conservatives who have been most supportive tend to be Republicans on the state level, especially governors who are in charge of state budgets.

States missed out on more than $23 billion in uncollected taxes from remote sales, the National Conference of State Legislatures estimated in 2012 — a figure that will only increase as online shopping becomes more popular.

With many states eager for the revenue from an Internet sales tax, a substantial number of Republican governors have indicated their support, including Nikki Haley of South Carolina, Bill Haslam of Tennessee, Mike Pence of Indiana, Rick Snyder of Michigan and Paul LePage of Maine. Former GOP governors like Jeb Bush, Mitch Daniels and Haley Barbour also have spoken in favor of the concept.

At least four states have worked to anticipate the revenues that would come from passage of the bill. In Ohio and Utah, the legislatures have planned to make the Internet sales tax revenue-neutral, with efforts to cut taxes elsewhere if Congress were to pass the measure. In Virginia and Maryland, the legislatures have marked the potential revenue for transportation.

Former Gov. Bob McDonnell of Virginia, an outspoken supporter of the tax, implemented a plan that would raise gasoline taxes if Congress didn't pass the legislation by 2015.

“You would normally think Heritage, Haley Barbour and Mitch Daniels would fall on the same side on this issue,” said Curtis Dubay, a senior policy analyst at the Heritage Foundation who opposes the bill. “There is an interesting break here, especially from governors.”

Quipped a consultant for supporters of the Marketplace Fairness Act, “People in D.C. don’t have to manage state budgets ... [and] no one in D.C. has to adhere to balanced budget amendment requirements.”

Some on the right consider the Marketplace Fairness Act a wise step to level the playing field and collect taxes already technically required, but others, such as Americans for Tax Reform and the Heritage Foundation, object to the burdens the bill would place on online retailers.

“It doesn’t equalize the playing field — it tilts it against online retailers,” argued Dubay. Online retailers, he said, would be faced with the difficulty of collecting state and local taxes that differ from customer to customer.

Those supporting the bill respond that the status quo is already unfair and that the proposal works to minimize it.

“It tries to achieve neutrality, as close as it can ... for people who buy over the Internet or in person,” said American Enterprise Institute resident scholar Alan Viard, who supports the bill. “It is tricky to get true neutrality here, but with the simplicity built into the bill… I don't know if we can get closer to neutrality than that.”

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