Editorial: On internet tax bill, Ayotte and Shaheen are right
As a rule, the greater the reliance on sales taxes to fund government, the more regressive the tax system, since sales taxes claim a far bigger share of the income of the poor and middle class than the wealthy. For us, that’s reason enough to oppose the Marketplace Fairness Act, a bill being rushed through Congress in hopes of allowing states to collect sales taxes on purchases made online from out-of-state vendors.
The bill is ostensibly a measure to help level the playing field between brick-and-mortar stores and businesses that avoid state and local sales taxes by selling online. It would do that, but it would also suck an estimated $11 billion per year out of the pockets of online purchasers. And that’s not counting the added consumer costs that would result from the expense of complying with the law.
That’s the high-minded reason for opposing the measure, and we congratulate Sen. Kelly Ayotte for joining with Oregon Democratic Sen. Ron Wyden in attempts to kill the bill. But there’s also naked self-interest. The law would be very bad for New Hampshire, a state with no sales tax, which is why Sen. Jeanne Shaheen has submitted amendments to the act that would exempt New Hampshire, and presumably the four other states that don’t levy a general sales tax, from its requirements.
The law would force New Hampshire businesses to collect sales taxes levied in some 9,600 jurisdictions and get nothing in exchange. The online businesses would lose the competitive advantage that comes from locating in a state without a sales tax, which means the state could conceivably see a drop in business profits tax revenue.
Technically, when someone from a state with a sales tax purchases a taxable product from a state with no sales tax, he or she is supposed to voluntarily pay the tax to their home state. But we doubt that those who’ve actually done so would fill an elevator.
To capture revenue lost to cross-border purchases, some states impose a “use” tax in addition to a sales tax. Massachusetts, whose politicians wax apoplectic when they watch cars and trucks loaded with no-sales-tax appliances, booze and other goods purchased in New Hampshire, is a case in point.
Nearly 40 years ago, New Hampshire state troopers briefly detained some shady characters observed in a New Hampshire state liquor store parking lot. They were noting the license plate numbers of Massachusetts residents seen filling their trunks with low-price spirits and wine. The detainees were undercover agents from Massachusetts.
Another cross-border tax raid occurred in 2003 when the Massachusetts Department of Revenue tried to force Town Fair Tire, a Massachusetts retailer that at the time had six stores in New Hampshire, to collect the use tax on tires purchased by Massachusetts residents. That case made it to the Massachusetts Supreme Court, which ruled that the state failed to prove that the tires in question were actually used in Massachusetts. In retaliation, the New Hampshire Legislature passed a bill that forbids the sharing of customer information with Massachusetts authorities.
For New Hampshire, the real danger of the internet sales tax bill lies in what it could mean for cross-border tax collections in the future. If, under federal law, New Hampshire online retailers have to collect sales taxes levied by Massachusetts and other states, the pressure to collect taxes on sales to all non-residents will increase.
And that could spell the end of a state revenue system predicated in good measure on making it attractive to avoid taxation by shopping in New Hampshire.