Saturday, February 20, 2010

Shortfalls, the 'Amazon Tax' and Textbooks

Idaho is no California, but there have to be Idahoans out there who scratch their heads at the thought of a state so embedded in an economic crisis not looking for revenue wherever they can find it. Though we think of revenue hunting in California as a potential marijuana-legalizing endeavor, the California Senate has passed legislation targeting sales on internet sites like Amazon and as prospective revenue sources.

Evan Halper in today's Los Angeles Times writes:
"The online retail giant has enjoyed an edge over many competitors in the state because it is not required to collect sales tax from residents who buy books, top-of-the-line plasma televisions, cases of diapers and thousands of other products from its website. The Seattle corporation has no store, warehouse, office building or other physical presence in California, and the state cannot tax such businesses under a 1992 Supreme Court decision.

"Consumers here are required to pay sales tax on the goods they purchase at Amazon but almost never do, because the state has no mechanism for tracking Amazon purchases and collecting the money.

"Now California is one of several cash-strapped states exploring a novel legal strategy that could force Amazon and others like it, including, to start collecting tax from their customers. New York launched the effort with a law that took effect in 2008. North Carolina and Rhode Island have passed similar laws; other proposals have advanced in the statehouses of Virginia, Illinois, Colorado and Hawaii."
Several weeks ago, writing at New West, Sharon Fisher noted that taxing internet sales could bring in an estimated $30 million to Idaho. She further explained the taxation loophole associated with internet sales:

"When the Internet first started becoming a commercial entity, Internet sales were exempted from sales taxes in order to help encourage new commercial companies to form on the Internet. But now, with Internet retail firmly established, legislators in a number of states are starting to say such protections are no longer needed.

"Currently, the law—due to the 1992 Supreme Court ruling of Quill v North Dakota [sic]--is that an online retailer has to pay taxes on sales only if it has a physical presence in a state. The argument by opponents of such taxes is that, without such a physical presence, it isn’t using state services and so shouldn’t have to pay state taxes."

Idahoans, like Californians, are required to account for their tax-free internet purchases every year when they file their state and federal taxes, but many either don't know that this is required, don't find it to be necessary, or simply avoid the tax. Taking out the additional step for the taxpayer might actually bring in additional tax revenue without irritating Idaho taxpayers.

An additional component to consider in terms of tax revenue shortfalls is the impact such loopholes for online stores like Amazon have on the funding of state services. In Idaho where higher education is taking a disproportionate hit in the endless rounds of budget cuts coming out of the statehouse, it would be interesting to know how much tax revenue is lost based on tax-free textbook purchases alone. Students are finding it much less expensive to purchase their textbooks through online outlets like Amazon that are tax-free (either hard copies or the newer Kindle and iPad versions of textbooks), versus campus bookstores that automatically collect a sales tax. Could this shift in textbook purchasing alone be depriving higher ed of needed funding lost when the state's tax revenues come up short? Perhaps. And students aren't necessarily filing each year (depending on their income), non-residents aren't filing in Idaho at all, and all categories of students may not be paying the sales tax for internet purchases as required by state tax code.

The tax revenue lost by not automatically collecting a sales tax on all purchases, online or otherwise, may be mere dollars, but every dollar matters in this economic climate.

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