A new Internet sales tax bill introduced in Congress has the potential to allow cash-strapped states to collect billions in sales taxes from online purchases.
The Marketplace Fairness Act is a significant step forward that could help Colorado — someday.
The problem that Colorado and a handful of other states would face in trying to use the authority described in the bill is lack of uniformity.
Colorado’s local taxing authorities have many different rates for various items and would have to agree on uniform sales tax rates for online purchases.
Yes, it’s a heavy lift. However, the folks at the state Department of Revenue say they think it’s possible. We hope so. This measure could put an end to the Amazon tax wars, and could help states collect revenues rightfully due.
Some online retailers have fought hard against state-level attempts to get them to collect sales taxes. They argued states were imposing improper and burdensome regulations on interstate commerce, and they had the law on their side.
The answer was federal legislation to allow states to compel sales tax collection. In Colorado, that could mean an additional $173 million in state and local taxes in 2012. That’s not chump change.
Geoff Wilson, general counsel for the Colorado Municipal League, said his reading of the legislation is that local taxing authorities would have to agree to the same rates for online sales originating with out-of-state retailers, ones without a physical presence in Colorado. They’d still keep their local rates for local sales.
Those online sales taxes would be collected at the state level, and then disbursed to the local entities.
It would likely mean that there would still be a difference — one tax rate if you buy something in a store locally and another if you buy online. Optimally, you’d want those to be pretty close, but given the variation in Colorado’s sales tax rates from one jurisdiction to another, there would certainly be a difference between the sales taxes you’d pay at a brick and mortar store versus online.
“It’s not a perfect remedy, but it’s not the injustice that it used to be,” Wilson told us.
What he means by that is now, people who buy goods online from out-of-state retailers frequently do so without paying any sales taxes.
That puts a local retailer with the store down the street at a big disadvantage in competing with those selling items online. A uniform tax rate for an online purchase would drastically reduce the “Main Street inequity” problem, Wilson said.
State revenue officials say passage of the bill, which has bipartisan support, would create a big incentive for Colorado’s many disparate taxing authorities to agree on simplification.
We hope Colorado policy makers give this serious thought. We appreciate and respect the autonomy of home rule cities and counties.
However, forging an agreement on this matter could result in a measure of fairness for local retailers and much-needed revenue for state and local governments.
