U.S. Sen. Tom Carper of Delaware, which has no state sales tax, has added his support to the growing movement in Congress to tax online sales. Over the weekend, Carper said growing untaxed online sales are creating an unfair advantage for Web retailers over brick-and-mortar merchandisers.
Delaware has long drawn shoppers from nearby states looking for bargains, but Carper is worried Web e-commerce is eroding that market and is co-sponsoring legislation to require out-of-state retailers, including Internet businesses, to charge and collect sales taxes on transactions.
The measure, introduced by Senators Michael Enzi, R-Ore., and Byron Dorgan, D-N.D., is the enabling legislation to a national compact negotiated among state governments to streamline 7,500 diverse sales tax laws among state and local governments.
States that do not choose to become members of the compact would not be required to modify to their tax systems, but could join the group and implement the simplification requirements at any time.
When he submitted the bill, Enzi said the growth of e-commerce “has reduced sales tax revenues to states, cities and towns that rely on this form of revenue to provide essential community services such as education, law enforcement, and fire fighting.”
Currently, sales and use taxes are owed on all online transactions, but states are prohibited from requiring remote sellers to collect and remit those levies. A 1992 U.S. Supreme Court decision said states can only require sellers that have a physical presence or “nexus” in the same state as the consumer to collect so-called use taxes.
The court ruled that the current patchwork of taxing jurisdictions across the country is too complex and burdensome for online retailers to charge and collect sales taxes. In order to collect the taxes, the court ruled, states would need to first simplify the existing system.
Not surprisingly, a coalition of national retailer groups, including the International Council of Shopping Centers and the National Governors Association, are lobbying for passage. And in addition to state governors, groups representing state and local lawmakers are also on board.
Carper’s support comes as advocates of an online tax ready for a push in 2004. The Senate version of the bill now has 19 co-sponsors.
Internet sales are estimated to hit $41 billion this year, slightly more than 1 percent of total U.S. retail sales.
While acknowledging that the tax-free Internet isn’t a significant problem for Delaware yet, Carper is concerned it will undermine the state’s appeal to tourists. Calls to Carper’s office for further comment were not returned.