WASHINGTON – State officials have long conceded that it is virtually impossible to collect taxes on out-of-state sales such as mail-order purchases: That headache may now go high-tech with the projected boom in online sales.
The National Association of Counties estimated Wednesday that if Internet sales continue to grow, states could lose as much as $50 billion in sales tax revenue over the next five years.
Unlike a purchase at a store, where the merchant is required to collect tax on every sale and pass it on to the state, online businesses are generally not required to collect the tax. That responsibility lies with the consumer.
“There are a lot of people who don’t know that they are required by state laws to fill out a tax form when they purchase items,” said NACO spokesman Shawn Bullard.
That appears to be the case in Maryland, although tax officials here said it is impossible to know how much tax money they might be losing on sales that are never reported to them in the first place.
They note, however, that the state collects only a minuscule portion of its overall sales taxes on self-reported out-of-state sales. And most of that is paid by corporations and not individuals, said David Roose, an economist at the Bureau of Revenue Estimates in the Maryland Comptroller’s Office.
Residents are supposed to file a form ST-118 when they purchase products and do not pay Maryland sales tax, said Michael Golden, a spokesman for the comptroller’s office.
But ST-118s accounted for only $22.4 million in revenue for Maryland last year, while total sales tax revenues in 1997 were more than $2 billion, Roose said.
Roose said Maryland already loses an estimated $35 million a year in sales tax revenue due to catalog sales. He said the state does not estimate losses due to online sales, because electronic commerce is still too small.
But online sales are growing — Forrester Research expects electronic sales to surpass the $100 billion mark within the next five years. Online businesses put the number much higher.
Predictions like that concern NACO, which said that higher online sales will mean lower sales tax revenues for local governments.
The association said that online sales also present a threat to “Main Street merchants,” who are at a built-in disadvantage when they try to compete against Internet firms that do not have to add sales tax to the cost of their goods.
“We don’t think they (Internet retailers) should be tax-advantaged … and that’s what they are now,” Bullard said. “It’s an issue of fairness.”
NACO argues that online businesses should be held responsible for collecting sales tax just like their Main Street counterparts.
But Mark Nebergall, a spokesman for the Internet Tax Fairness Coalition, says cutting-edge businesses should not be saddled with horse-and-buggy taxes. If the sales tax makes Main Street businesses economically unfeasible, he said, maybe it is time to rethink sales taxes.
“It was invented back … when all the commerce was done face to face, but now the economy is different,” he said. “The customer has access to a global marketplace.”
Nebergall could not say how to solve the problem of uncollected sales tax, but he said it should not be the online company’s job to collect it.
While a local store can collect sales tax at a single rate and then turn the money over to one government tax agency, an online retailer would be responsible for dealing with thousands of tax-rate jurisdictions and filing tax returns in all 50 states, he said. That makes the sales tax “unenforceable” in a high-tech economy, Nebergall said.
“It’s a dinosaur,” he added.