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Online Sales Taxes Could be Targeted by the State

Pennsylvania House Appropriations Chair: It would not be a tax increase

Editor's Note: What follows is a report that appeared on the Pennsylvania Independent website. Pennsylvania Independent is an online news site sponsored by the Franklin Center for Government and Public Integrity, which covers state government issues in Harrisburg. From time to time, Bethlehem Patch will publish reports we believe might be of interest to our readers.

Pennsylvania could join a national compact of states in an effort to grab at least a portion of $700 million in annual uncollected sales tax revenues from online vendors.

Christopher Rants, former Speaker of the Iowa House, told the House Appropriations Committee about the multi-state compact during an informational meeting Tuesday.  The compact, which currently includes 24 states and more than 1,400 online vendors which voluntarily participate, aims to help states recover sales taxes which otherwise would have to be tracked down by auditors and would likely never be paid.

"In times of great budget challenges, we cannot allow taxes to go uncollected," said Mr. Rants, who is also chairman of the Main Street Fairness Coalition, an organization attempting to convince states to join the compact.

With Pennsylvania facing a $4 billion to $5 billion shortfall next year, Appropriations Committee Chairman Bill Adolph said additional sales tax revenues would be only a part of the solution.

"We have to check the numbers," said Mr. Adolph.  "I think it makes sense to look at it."

Mr. Adolph said he did not see the proposal as a tax increase, since it deals only with an existing tax which is not being paid.

Mr. Rants presented the issue as a matter of fairness, saying brick-and-mortar businesses operating in the state were expected to pay sales tax but online businesses with customers in Pennsylvania were avoiding the same burden.

"If an existing tax is owed, the only question is how we collect it," said Mr. Rants.

As it stands now, however, states in the compact can only collect taxes from businesses which have voluntarily entered the agreement and are paying their sales taxes.  Because online purchases are interstate commerce, Congress would have to overrule a 1993 Supreme Court decision before states could require online businesses to pay sales taxes.   

The list of vendors participating in the program is confidential, said Mr. Rants, though he admitted major online retailers Amazon and eBay are not among the members.  The list is kept confidential to prevent states from specifically targeting businesses which do not participate in the compact.

Mr. Rants said there is an on-going effort to get Congress to act on the issue, but the collection of those sales taxes before states would be able to collect out-of-state sales taxes from all retailers. 

"We don't realize the full gain until there is congressional action," said Mr. Rants. "We collect some revenue immediately but it is a far cry from the grand total which is due to our states."

Mr. Rants said Congress has been reluctant to act on the issue but he hopes more states joining the compact will apply pressure at the federal level.

New Jersey, West Virginia and Maryland are among the 24 states participating in the compact.

When asked how much Pennsylvania could expect to collect by participating, Mr. Rants said Iowa collected about 8 percent of the state's estimated total of outstanding online sales tax.  If Pennsylvania also received 8 percent, it would amount to about $62 million annually for the state budget.

State Rep. David Millard (R-Columbia) questioned whether it was worth changing aspects of the sales tax code in order to enroll in the compact.

"Are we in essence going to be penny wise and pound foolish?" said Mr. Millard. "Is it going to cost us more to collect it?"

Before Pennsylvania could join the compact, it would have to clarify the definitions of some items taxed to match the other states participating since the compact uses   Mr. Rants said the most difficult thing for some states to do is to standardize what counts as "food" versus what counts as "candy." 

Pennsylvania has a highly complex sales tax system, with more than 70 exemptions for various goods and services.  The state imposes no sales tax on food or clothing.

Last year, former Gov. Ed Rendell proposed eliminating some of the exemptions, but the plan did not pass the General Assembly.

Locally higher sales taxes - such as in Philadelphia and Allegheny counties - could remain in place if Pennsylvania joined the compact.

Eric Boehm is a reporter for PA Independent.  He can be reached at Eric@PAIndependent.com

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