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Congress leveling tax field for retailers

It is news when Republicans and Democrats join to support a tax bill, so Congress is making news.

Senate Bill 743, known as the Market Fairness Act, requires most online retailers to collect and remit sales tax to the states and local governments and is moving in Congress. The Senate is scheduled to take a final vote on Monday with the House taking it up shortly thereafter.

Among the supporters in the Senate are some of the staunchest anti-tax advocates. This may seem hard to believe, but the bill doesn’t raise rates or impose new taxes. It is not, despite what many will say, a tax increase. Hoosiers already are required by law to declare their online purchases on their income tax return and then pay the tax.

It is an inefficient method for collecting the sales tax, though, since only 1 percent of about 3 million state tax returns included any declaration of online sales. A November 2011 study by the Indiana Fiscal Policy Institute estimated the state fails to collect about $100 million in taxes it is due from online sales.

The proliferation of high-speed Internet and online sales only means this tax loss will increase unless there are changes. The state could conduct more audits, an expensive and time-consuming method, or it could require online retailers to do what their brick-and-mortar counterparts have done for years: collect and remit the sales tax at checkout.

The bill will make it easier for Indiana to collect the sales tax from online retailers. The Streamlined Sales Tax is a cooperative effort and provides the back-office structure to make it easier for online retailers to collect and remit the sales tax to Indiana.

Through the years The SST has developed protocols and software guidelines that many states and online retailers already use. The legislation before Congress will make this process work for the 44 states, the District of Columbia and the thousands of local governments that levy a sales tax to collect it efficiently.

Indiana is among 24 states that have adopted the Streamlined Sales Tax protocols and has reached agreement with Amazon.com to collect state and local sales taxes beginning in January.

This is not a new issue. Nearly two years ago Simon Property Group, the nation’s largest mall owner, sued Indiana to enforce the sales tax for online purchases. More than a century ago the argument centered on whether J.C. Penney and Sears, among others, had to collect state and local sales taxes on catalog purchases.

The issue became more pressing, though, because Internet sales doubled between 2005 and 2010, according to U.S. Census figures. And the growth is accelerating. The National Conference of State Legislatures estimated uncollected sales taxes from online purchases cost states about $11 billion last year; that figure was $7.7 billion in 2008.

While the Senate strongly backed the bill, it’s unclear what will happen in the House. It is possible anti-tax representatives will misrepresent the bill as a tax increase to stop it. The law, however, simply allows the state to use the same collection method online that it has used with brick-and-mortar retailers for decades.

It is not a tax increase when the state uses a more efficient means to collect what it is already owed.

Collecting sales tax from online retailers also eliminates a distortion that gave them an effective price discount compared with brick-and-mortar retailers. Now the competition among retailers will center on what it should: price and service.

Any tax that is levied is fair only if those who owe the tax actually pay it. The Market Fairness Act makes that happen.

John Ketzenberger is president of the Indiana Fiscal Policy Institute. He wrote this for Indiana newspapers.

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