As the Legislature begins moving from budget cutting to budget gutting later this month, tax “loopholes” are being scrutinized as opportunities for new revenue.
Closing various exemptions, though, doesn’t always put more cash into government’s coffers. Some have undoubtedly outlived their intended usefulness and should end. Many, though, more than pay for themselves by spurring private investment and job creation. There may be revenue to be gained by ending some tax preferences, but not enough to put a serious dent in a budget shortfall of about $2 billion.
There is a gaping loophole out there, however, that if closed by Congress could indeed make a huge difference.
The Marketplace Fairness Act, introduced by a bipartisan group of U.S. senators last week, would give states the authority to collect sales taxes from remote sellers — mostly Internet merchants. This isn’t a matter of instituting a new tax, but of collecting one that’s due but isn’t being paid.
(A 1992 U.S. Supreme Court decision barred states from requiring out-of-state businesses without a physical presence in the state to collect sales taxes, but allowed Congress to OK the practice.)
It’s also a matter of competitive fairness. As online retail sales have proliferated, remote sellers have gained an increasing advantage over brick-and-mortar retailers. Why go to the mall to buy a computer, or even a sweater, when you can get it online tax-free?
Moreover, state and local governments that depend on sales tax revenue — especially in a state like Washington, which has no income tax — are seeing their tax base erode more and more each year. The state Department of Revenue projects that if the Marketplace Fairness Act passes, it will generate $306.5 million for the state general fund in the 2013-15 biennium, and an additional $176.5 million for local governments. Those totals would be expected to double in the following biennium.
Washington would start collecting sales taxes right away because it has already adopted the national Streamlined Sales and Use Tax Agreement, one of the bill’s requirements.
Unlike most tax measures, this bill has the support of conservatives because states would have the option of requiring remote sellers to collect sales tax. Seattle-based Amazon, the major online retailer that has long resisted collecting sales taxes in most states, supports it because its requirements won’t be overly burdensome.
As state and local governments struggle to provide the most vital of educational, social and public safety services, this is an easy, fair and sensible way for Congress to lend a hand. It should do so, without delay.