President Trump “feels strongly” that the U.S. should permit collection of state and local sales taxes on purchases made over the internet, Treasury Secretary Steven Mnuchin said recently.
Mnuchin, speaking at a hearing before the House Ways and Means Committee, said he has spoken with Trump about the issue, and that the president “does feel strongly” that state and local taxes should be applied to the purchases.
The prospect of collecting sales tax on online purchases has been a long-standing point of contention between internet-based retailers and their brick-and-mortar rivals. Trump has previously gone after internet giant Amazon.com, saying last year that it does “great damage to tax paying retailers.”
Brent Gardner, chief government affairs officer for Americans for Prosperity, a political network led by billionaire industrialists Charles and David Koch, blasted the idea of requiring online retailers to collect state and local sales taxes. Saying it’s tantamount to creating “new taxes on everyday consumer goods such as items purchased over the internet” that would “disproportionately impact those who can least afford it.”
Amazon began collecting sales taxes on purchases in all states that levy them earlier last year, despite an exemption that allows online retailers to avoid collecting them in places where they don’t have a physical presence. But Amazon still avoids charging shoppers sales taxes when they buy from one of its third-party vendors — sales that make up about half the company’s volume.
Untaxed third-party sales might provide an advantage over brick-and-mortar retail chains, which have their own robust online operations but have to collect sales tax on all purchases in states where they have physical presences. Many large chains have stores in almost every state.
At the federal level, several bipartisan bills have been introduced to allow states to mandate collection of the taxes, with the most recent one re-introduced last year and endorsed by Amazon. A previous bill passed the Senate.
Legislation introduced last year by U.S. Congresswoman Kristi Noem, a South Dakota Republican, would permit states to collect taxes on most online sales but require them to provide free software to in-state businesses allowing them to figure out the tax rate in the buyer’s home jurisdiction.
Since a 1992 Supreme Court ruling established the precedent for exempting online retailers from sales taxes, various states have enacted “Amazon laws” to tax online sales the same way that brick-and-mortar sales are taxed. The Supreme Court ruling said states couldn’t require out-of-state retailers to collect sales taxes from consumers unless those retailers had a physical presence -- through branches, warehouses or employees — where the consumers were located.
The court may revisit the issue in a case it is hearing this year in which South Dakota challenges the 1992 ruling.
Largely because of that ruling, which predated the rise of widespread online retailing, states miss out on as much as $13 billion a year in sales taxes from online and catalog purchases, according to a 2017 study by the federal Government Accountability Office.
