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Time for tax on Internet sales

Quick, raise your hand if you pay sales tax on your Internet purchases.

You probably don’t, even though you are supposed to if you live a state that has a sales tax.

The instructions for the West Virginia tax code specify that a “use tax” of six percent applies to “Internet purchases, magazine subscriptions, mail-order purchases, out-of-state purchases, telephone purchases originating out-of-state, (and) TV shopping networks.”

But hardly anyone correctly fills out the West Virginia Schedule UT form and calculates those taxes do the state.

Those uncollected taxes add up. It’s estimated that at least $11 billion dollars due the states is left on the table every year because of what amounts to a giant loophole in collections.

That would change under the Marketplace Fairness Act. That federal legislation would require retailers with at least $1 million in annual remote sales to collect sales taxes and send the money to the appropriate state or city.

That’s not a simple matter. There are about 9,600 different taxing jurisdictions in the country.  Qualifying sellers would need special software, which bill supporters say the states will give them for free, that would calculate the taxes.

That’s the right move.  The current two-tiered system not only lets taxes due go uncollected, but also puts brick-and-mortar businesses at a disadvantage.

In West Virginia, the local merchant has to impose a six percent sales tax, while an out-of-state business can sell the same item with no taxes.

The primary reason these taxes have gone uncollected over the years is that a 1992 U.S. Supreme Court decision (Quill Corp. v. North Dakota) said Internet and catalog sellers don’t have to collect sales tax in states where they have no physical presence.

However, the Court’s opinion left the final say up to public policy makers.

“The underlying issue is one that congress may be better qualified to solve and one that it has the ultimate power to resolve,” the Court said.

The U.S. is on the verge of doing just that, with the help of Senators Jay Rockefeller and Joe Manchin, who both support the bill.  The House of Representatives should follow suit.

This is not about imposing new taxes, but rather having a fair and equitable system of collecting the taxes that are already due.

 





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