May 3 From the hearing rooms of the U.S. Congress to the halls of state legislatures across the country, a cry is rising for more states to be able to tax transactions over the Internet as a fix for their budget problems.
On Thursday, the credit rating agency Fitch Ratings put a damper on the promises of the "Amazon Tax," saying that additional revenues "would be of limited scope and are unlikely to affect a state or local government's overall budget picture."
As the housing market downturn, financial crisis and recession came together to create a collapse in revenue not seen in decades, many states saw promise in taxing Web sales as a way of balancing budgets. Smartphones have made buying on-line even easier and local retailers are worried about losing business, and having to cut jobs.
According to Fitch, the loss for all U.S. states under the current practice of only collecting sales taxes where companies have a physical presences is about $11 billion.
The impact is smaller for local governments because they primarily rely on property taxes for revenues.
"The Maryland number is $300 million," Maryland Senator Ben Cardin said about how much his state loses in sales taxes at a hearing last week. "Interesting number because the governor is talking ... about bringing the legislature back for a special session in May because of a $300 million (budget) gap and is looking at increasing a lot of taxes in our state."
State revenues have begun improving recently. Still, Kim Rueben, senior fellow at the Urban-Brookings Tax Policy Center, said Congress "could help stop the erosion of sales tax receipts" by allowing state and local governments to collect taxes on Internet and mail-order sales.
Legislation is moving in the Senate and the U.S. House of Representatives to allow Internet taxation, but Fitch said "the short-term prospect for the passage of either bill is uncertain."
In 1992, the Supreme Court said the patchwork of state tax laws made it too difficult for on-line retailers to collect and remit sales taxes. Currently, states can only tax Internet sales by companies with physical presences within their borders.
For more than a decade, states have worked to create a "streamlined" tax agreement that would establish a consistent system of remitting sales taxes and about half of the states have signed on. Not all states have sales tax and those that do charge different rates.
Some states have also entered into agreements directly with Amazon.com Inc, the largest Internet retailer in the United States. Last week, it agreed to begin collecting sales tax in Texas, starting July 1.
Some companies are going to court. Fitch noted that Simon Property Group, a real estate investment trust that owns the largest portfolio of malls in the country, sued Indiana last year because the state is home to several Amazon distribution centers and warehouses. The group contends Indiana should have to collect tax on Amazon sales.