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Fairness to main-street, online retailers

September 10, 2010
By Delegate John Doyle, The Doyle Report

"The power to tax is the power to destroy" is a frequent misquotation of a phrase used by Chief Justice John Marshall, writing the Opinion of the Court in the landmark U.S. Supreme Court case McCulloch v Maryland in 1819.

Marshall actually said, "The power to tax INVOLVES the power to destroy," which is a bit more nuanced.

Furthermore, his quote was inspired by an even more nuanced phrase used by the great lawyer-orator U.S. Sen. Daniel Webster in arguing that very case before the high court. Webster said, "The UNLIMITED power to tax involves necessarily the power to destroy."

However, as James Madison said, "The power of taxing people and their property is essential to the very existence of government."

Clearly, the taxing power is a mighty instrument. I believe it must be exercised with a clear sense of fairness.

I don't think government should use its taxing power to create winners and losers in the economy. But "main-street" retailers face discrimination by the current application of the consumers' sales tax in the 45 states that have such taxes.

When someone in one of those 45 states buys a product or service, the sale of which is taxed, the consumer, not the retailer, owes the tax. Main-street "brick-and-mortar" retailers are required by law to collect the tax and send the money to the state, but "remote" retailers (those without a physical presence in the state) are not so required.

That is to me grossly unfair and I've been working since 2002 to correct that unfairness.

When the online retailer fails to collect the tax from you, it's your responsibility to find out how much it is and send the money to Charleston. If you don't, you're violating the law.

Don't worry, nobody from the Department of Revenue is going to come after you. It's just as much a hassle to try and get the money as it would be for you to go to the trouble to send in what you owe. Many people aren't even aware they owe the tax.

The problem comes from another U.S. Supreme Court decision, Quill v North Dakota, in 1992. The court said that the customers owe the taxes, but it would be an "onerous burden" on remote sellers to force them to collect, because of the great variation of rates, rules and definitions from state to state.

The court further said that the U.S. Congress could at some point declare that the burden was no longer onerous, and that collection of such taxes could then be mandated.

So began the Streamlined Sales Tax Project, designed to bring voluntary similarity among state sales tax statutes.

Including West Virginia, 24 states have now brought their statutes within the parameters of the Streamlined Sales Tax Agreement, adopted by the Project in 2003. These states are asking the Congress to pass a statute declaring that for these 24 states, the burden is no longer onerous.

If the Congress were to pass such a statute, West Virginia's main-street retailers and their online, telephone and mail-order competitors would finally have a level playing field.

Some online retailers, not realizing how simple the system has become, complain that it would be too difficult for them to collect the tax and send it to the state governments of each customer. It's no harder for them than for the folks on main street.

The same technology that has permitted an explosion of online businesses makes it simple for them to collect. Software and service providers exist that can collect the tax for any jurisdiction in the country with a few keystrokes.

Plus, small sellers will be exempted from having to collect. About half the sales tax states now compensate retailers for collecting the tax (West Virginia does not). Under the proposed federal law all retailers, main street and remote, will be compensated for collecting.

Because the Congress has failed to act on this issue, some states have begun to act in ways I fear are potentially sinister. Colorado requires online retailers to provide its revenue department with a year-end list of consumers' purchases. Other states have made similar moves. Consumers can more easily comply with the law, but with their privacy compromised.

What's at stake is the survival of the consumers' sales tax as a method of getting a state the revenue it needs to provide the services its citizens have said they want the state to provide. If the sales tax is not brought into the 21st century it cannot survive, because the present unfairness to main-street retailers will get ever worse.

I have many friends who are opposed to the sales tax in principle, because it is regressive. That position is certainly intellectually defensible. No doubt the sales tax is regressive, because it takes a larger percentage of a poor person's income than that of a wealthier person for a given purchase.

However, I know quite a few low-income folks who prefer paying the sales tax to paying either of the other two basic kinds of taxes (income and property) because it's less of a hassle and non-intrusive. (Good thing they don't live in Colorado.)

And, if we're going to do away with the sales tax in West Virginia, we must figure out how to plug the billion-dollar hole that move will create in our general revenue budget. We either cut basic services (much larger classrooms, fewer state troopers, etc.) or raise either the income tax or the property tax. No free lunch, folks.

I think the wisest tax structure has a fairly even balance between the three basic types of taxes (the "three-legged stool").

Speaking of low-income folks, the current system creates another

 
 
 

 

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