The Washington Times-Herald

December 22, 2011

Tangled taxation


New Castle — When it comes to taxes, Americans have a lot of disagreements.

What should be taxed? What should the rates be? What sort of tax breaks should be offered?

But we think it’s safe to say that most people accept the argument that taxes — no matter the type — ought to be fairly and equitably assessed.

Yet when it comes to sales taxes, they are not. Recently, a series of articles was produced that looked at Internet commerce and the fact many of these transactions generate no sales tax revenue for states.

The result is that cash-strapped states are losing billions of dollars in revenue they really could use right now.

But more than that, the current system puts traditional brick-and-mortar stores at a distinct disadvantage. In many instances, consumers will opt to shop online to avoid sales taxes.

Now, Pennsylvania is in the forefront of efforts to collect as much of this tax as is legally possible. Two weeks ago, the state’s revenue department sent out an edict that’s using a 1971 state law for this purpose.

Essentially, the state’s new position is that even businesses based out of state must collect and remit Pennsylvania sales taxes if they have some sort of warehouse or other facility in the commonwealth.

Significantly, Web giant has four warehouses in Pennsylvania.

Under the state’s latest sales tax ruling, affected business must collect sales tax from commonwealth-based customers. Those that don’t run the risk of being targeted for back taxes.

Pennsylvania’s sales tax ploy, combined with efforts in other states, may prompt Congress to get involved. A 1992 U.S. Supreme Court ruling limits what states can do to collect sales taxes from online transactions, but it noted Congress — with its power to regulate interstate commerce — can establish new rules.

States also are looking for ways to cooperate with each other when it comes to Internet sales tax collections. A key factor is the difficulty in tracking many of these transactions. Much of this effort appears to be based on the honor system, which isn’t the best way to assure fair taxation.

Another sticking point is the fact each state has its own sales tax rules. For instance, many consumer items, especially food and clothing, are exempt from Pennsylvania’s 6 percent sales tax. And in some parts of the state, municipalities add another 1 percent to the sales tax.

From a business perspective, it would be a logistical nightmare to keep track of all state sales tax rules, along with the locations of all customers. We think any effort to promote revenue fairness must address Internet sales, but Washington and state governments need to negotiate a system that will tax this commerce without killing it.

New Castle News

New Castle, Pa.