Refreshing the Internet Sales Tax Debate

Recent developments surrounding the internet sales tax highlight the continual divide between online retail giants, smaller brick-and-mortar retail stores, Congress, and state and local municipalities. In February 2013, Amazon will begin collecting state sales tax for goods purchased by Arizona citizens. Amazon currently collects sales taxes on behalf of eight additional states and will expand this effort in the coming months and years.

By law, nearly every state should be receiving revenue from consumers in the form of a “use tax”. Unfortunately, the burden falls to the consumer to report and pay the taxes; however, rarely anyone does so. In Oklahoma alone, this will likely result in over $200 million of lost revenue in 2012.

In addition to the decrease in state revenue, many brick-and-mortar companies and small businesses have been negatively impacted by the rapid growth of online purchases. In most states, stores with a physical presence are required to charge and collect state sales tax, whereas online retailers are exempt. This creates an unfair advantage. Small, local businesses, as well as large national retailers like Best Buy, are equally disadvantaged by this inequity.

Amazon is part of an emerging trend in which large online retailers are increasingly offering support for federal legislation, such as the Marketplace Fairness Act, requiring online retailers to collect and remit sales taxes to the states. However, it is important to note that Amazon’s support of the legislation is due in part to the company’s plans for warehouse expansion in a number of states, which will require the company to collect taxes in those particular states because of its physical presence.

While proposed federal legislation addresses the internet sales tax inequity and protects main street businesses and state budgets, Congress fails to move forward with passage.

In the wake of Congress’s inaction, it is encouraging to see online retailers slowly throwing their support behind much needed federal legislation. Continued support from heavy-weight online retailers, as well as brick-and-mortar retailers like Best Buy, could ultimately increase pressure on the 113th Congress, resulting in an end to this disparity.

Brad Henry served as governor of Oklahoma from 2003 to 2011.