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Editorial: States need power to tax online sales

Mar. 02, 2013 @ 09:50 PM

Online retailing has grown rapidly over the past two decades with convenience, low pricing and a vast inventory.

But online merchants also have benefited greatly from a competitive advantage they should never have had in the first place. For many transactions, they do not have to collect sales tax.

When online sales were just beginning in 1992, the Supreme Court ruled that states could not collect sales taxes from retailers unless that retailer had a physical presence in the state. Theoretically, customers still owed the tax, but it was up to them to "self report" and pay the sales tax on their own. How often did that happen?

Add in the difficulty states have faced in monitoring the emerging online marketplace, and the result is that very little sales tax has been collected on online sales. States missed out on $23 billion in revenue in 2012, according to one estimate.

But perhaps of even greater concern, the situation gives online merchants an automatic 5-10 percent price advantage over local stores selling the same product. Twenty years ago, that may not have seemed like a big deal, but today online sales have become a major threat to many brick-and-mortar retailers, large and small.

Slowly, states are working to close the loophole.

Last week, West Virginia Gov. Earl Ray Tomblin introduced legislation to require online retailers with facilities in the state to collect the state's 6 percent sales tax on sales to residents in the state. That would include businesses that maintain an office, warehouse or other facility, such as the Amazon customer service center at KineticPark in Huntington.

Several other states have taken this approach with mixed results, but it is a step in the right direction. Amazon, for example, is collecting sales tax on orders shipped to seven states with agreements in the works for six other states, The Associated Press reported.

West Virginia also has signed onto the Streamlined Sales and Use Tax Agreement, where online and catalog retailers voluntarily collect sales taxes on behalf of the 24 states involved.

However, a comprehensive solution will require action from Congress. Last month, the Marketplace Fairness Act was once again introduced in the Senate and House. It would give states the authority to require all online retailers -- no matter where they are located -- to collect sales tax at the time of the transaction.

That is the level playing field our local businesses, which pay local taxes and provide local jobs as well as valuable services, deserve.

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