US cities, counties lose out without online sales tax - mayors

WASHINGTON, June 21 Fri Jun 21, 2013 6:11pm EDT

WASHINGTON, June 21 (Reuters) - U.S. cities and counties lost out on $1.7 billion of new revenue this year because Congress has not passed a bill allowing states to tax Internet sales, a report released by the U.S. Conference of Mayors on Friday showed.

From 2011 through 2013, the additional revenue would have totaled $4.5 billion, according to economic research group IHS Global Insight, which was commissioned to produce the report.

Under a 1992 U.S. Supreme Court ruling, states can only tax Internet sales made by companies with a physical presence within their borders. That means online retailers charge sales tax in some states and not in others.

The U.S. Senate in spring passed legislation that would allow states to tax sales made beyond their borders. It faces an uncertain future in the House of Representatives, where Republicans have raised concerns that the tax could burden small online businesses.

The bill would exempt sellers with less than $1 million in nationwide sales from collecting sales taxes.

The Republican sponsor of the bill in the House, Steve Womack of Arkansas, told reporters earlier this week Congress has recently focused on other, larger pieces of legislation and he was not optimistic the bill would pass soon.

States, which collect most sales taxes, have said their budgets are hurting. Fitch Ratings estimated that states are losing $11 billion annually without the online tax.

Some local governments add their own taxes, ranging from 0.1 to 6 percent, IHS said.

State and local governments combined lost out on almost $14 billion this year by not being able to tax online sales, IHS estimated.

In 2012 New York City had the greatest loss, of $200 million. Phoenix and Chicago followed with $18 million each.

Mesa, Arizona, with an annual budget of $325 million, has lost out on $14 million over the last three years, the study found.

The number may not be large, Mesa Mayor Scott Smith said, but Internet commerce will continue to grow and Congress must pass the legislation to "stop the bleeding." Mesa does not charge property taxes.

The bill would boost the city's revenue in two ways, because it relies heavily on state funds as well as sales taxes, said Smith.

"We're really bare bones and we're operating on the fringes in terms of additional revenue or additional cuts," he said, adding that any new revenue would go toward the police, parks, libraries and other services.

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Comments (1)
Swisslux2 wrote:
Proponents of this bill say it will be easy. REALLY? Have they ever tried to integrate tax software into a customized shopping cart? LOL!! Even if we take them at their word “only one state tax rate” and “perfect running software to calculate”, HOW DO PAYMENTS GET REMITTED to all 46 states? Do we write 46 monthly checks? Fill out 46 separate monthly sales tax returns?

NO ONE CAN HONESTLY ANSWER THIS QUESTION BECAUSE THEY DID NOT STUDY THE APPLICATION OF THIS LEGISLATION BEFORE RUSHING IT THROUGH THE SENATE.

Not all small merchants are order automated and to input additional information by hand is both time consuming and interferes with normal business operations. What about audit risk? Can the tax board in Tennessee come after a merchant in Florida? Is it moral to burden an out of state merchant to collect taxes on behalf of a state they don’t live or work or vote in? Why not ask China or Mexico to collect Tennessee taxes? Is this constitutional? Will surely be challenged in the courts, but why this legislation is truly harmful is that in such a weak recovery (check labor participation rate, wage growth, hours worked, etc.) you are burdening the very small businesses that are one of the only sources of growth in our economy. Hiring in this sector will freeze or decline and companies that are mobile and of large enough scale will simply move offshore. Our tax code is already written in a manner that encourages large companies to domicile offshore, this legislation encourages the medium and even portable smaller sized USA businesses to join them in order to compete with websites that won’t have to collect this tax in the Caribbean, Mexico, Canada, etc.

The tax revenue collected will come right out of the pockets of the average American family and the extra $$$ our citizens will have to pay means LESS money in their pockets to spend locally.

HOW ABOUT AN OPT OUT OPTION? We agree not to ship to states that want us to collect sales tax and then we are not forced to multiple file and take the audit risk?

One million dollars of revenue does not make you a big business…….at a 5% profit (small margins are common online) you are making a whopping $50K of gross profit annually……this will ensnare and burden a TON of small businesses if passed in its current configuration.

Jun 25, 2013 7:31am EDT  --  Report as abuse
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