Last summer, the El Paso County commissioners revised the way that the county collects use tax on building supplies.
For many years, the county had relied upon the city to collect the 1 percent tax, which builders are obligated to pay for materials used in commercial or residential construction. Payment of the tax was on the honor system, since it’s not automatically collected by suppliers. This system led to multiple abuses, particularly by builders who drop shipped materials from out of state and never paid the tax. The city conducted random audits to catch cheaters, but county officials rightly suspected that the majority of scofflaws went undetected.
By instituting a simple, transparent system whereby the Regional Building Department collects the tax when building permits are issued, the county put all the players on an even field and sharply increased its use tax revenue.
By their decision, the commissioners reinforced one of the fundamental principles of governance — that taxes should be fairly levied and efficiently collected. Governments should make sure that tax policy is equitable and that compliance is easier than evasion.
Apply those simple principles to internet sales, and it’s painfully clear that we need to make changes.
If, for example, you buy a book from walmart.com, you’ll pay the same sales tax rate that you’d pay at your neighborhood brick & mortar store, regardless of your state of residence. Buy the same book from Amazon.com, and you’ll pay nothing in 45 of 50 states.
Why? Because Wal-Mart has stores in every state and, like a good corporate citizen, pays sales tax. Amazon claims, feebly enough, that since it only has distribution centers in a few states, it doesn’t owe sales tax in other locations.
A decade ago, when online transactions amounted to a tiny fraction of retail sales, it made sense for state and national policymakers to step aside, and let the nascent technology grow without heavy-handed taxation.
But times have changed. Today, Amazon is a national behemoth, with annual sales of more than $22 billion.
To claim that such companies should be exempt from sales taxes is disingenuous. By the same logic, airplane tickets should be tax-exempt, unless purchased in the state where the airline is based.
Congress could easily simplify matters by requiring all internet sales, large and small, to be taxed at the rate applicable in the buyer’s place of residence.
But given that there are thousands of taxing jurisdictions in the United States, wouldn’t that impose a costly and complex burden upon buyers and sellers alike?
No, according to Netflix CEO Reed Hastings.
In a post in the New York Times last year, Hastings noted that “…we collect and provide to each of the states the correct sales tax. There are vendors that specialize in this (we use Vertex). It’s not very hard.”
There’s an argument for supporting new enterprises and new business models with tax abatements and exemptions. But such largesse must eventually cease.
At the dawn of online retailing, its proponents used to say of skeptics that “they just don’t get it.” Nowadays, the smug titans of the online world need to realize that they have no special claim to tax-free status. States, municipalities, and the local businesses that support them through sales tax are all being short-changed by online freeloaders, who “just don’t get it.”
It’s time for Congress to display the political courage of our local county commissioners and close this egregious loophole. Such legislation would not raise taxes-just make the de facto tax evaders pay up.