By Bill Britt
Alabama Political Reporter
MONTGOMERY—In the sleepy hours of the 2012 Special Session of the Alabama Legislature, they passed the “Remote User Tax” that is designed to raise hundreds of millions of dollars by way of taxing internet sales.
Last week, as a part of his trip to Washington, DC, Governor Bentley met with Alabama’s GOP lawmakers to encourage them to support S. 1832, the Market Place Fairness Act.
The law would allow states to require out-of-state, online-only retailers to collect and remit sales taxes already owed but rarely paid on purchases by state residents.
In Congress, the Marketplace Fairness Act is co-sponsored by Representative Spencer Bachus, as of this report other Alabama legislators have not weighed in significantly on the issue.
Advocates of the act say these taxes are already owed but rarely paid on purchases by state residents. In Alabama, for years there has been a category on the state income tax form where an individual is suppose to list and pay taxes on purchases that are made out of state and brought back to Alabama for use. However, little money is ever realized by this method of tax collection.
However, under federal law, states cannot force out of state businesses to collect such taxes. Doing so is currently barred in the absence of congressional action under the Supreme Court’s Quill v. North Dakota decision.
Exactly, how, when and why the obligation to collect sales tax falls to the seller is a vague and gray area.
Governor Bentley has been at the forefront of state leaders calling for the congress to enact Market Place Fairness Act. The governor find himself a the head of a list of well-known republicans including: Branstad (R-Iowa), Christie (R-N.J.), Daniels (R-Ind.), Haley (R- S.C.), Haslam (R-Tenn.), LePage (R-Maine), Sandoval (R-Nev.) and Snyder (R-Mich.), former Governors Haley Barbour (R-Miss.) and Jeb Bush (R-Fla.), Senators Alexander (R-Tenn.), Blunt (R-Mo.), Boozman (R-Ark.) and Corker (R-Tenn.).
Under Alabama’s “Remote User Tax” law passed in the 2012 legislative session, is a new category that would require business outside of Alabama to collect taxes on goods purchased from them and pay them to state and local governments. This is designed primarily to collect taxes from Internet purchases. State lawmakers, again say this is not a new tax but a way of collecting tax already owed.
Critics disagree and see many fallacies related to the Marketplace Fairness Act (MFA).
Americans for Tax Reform says that the MPA is a direct threat to the principle of republican governance by the people, shifting the cost of government to non-residents. They also claim that the MFA pushes measures that dissolve the physical presence standard and have the potential to usher in the second coming of taxation without representation in America.
This is also echoed by the American Enterprise Institute who concludes that the MFA is a variation on a theme our ancestors called “taxation without representation” saying that states’ rights, like individual rights, must end where another’s rights begin.
As to the MFA or Alabama’s “Remote User Tax” is a new tax the Americans for Tax Reform, says this is a fundamental change in tax law and certainly a new form of taxation. Furthermore, for the numerous retailers who do not pass sales tax liability onto their consumers at the register, this legislation amounts to a new out-of-state tax that will come directly out of a business’s bottom line.
Semantics aside a individual in Alabama making a purchase on the Internet will certainly conclude that state lawmakers have instituted a new tax.
Forrester Research has said that the average U.S. online shopper will soon spend $1,700 annually, if this is true then Alabama’s online shopper can expect to pay around $170 a year in what the government says are not new taxes.
According to two recent studies it is estimated that in Alabama $211 million in state and local taxes could be collected from the internet sales tax. This is assuming a small-seller exemption of $500,000.
Using Alabama’s statutory formulas, this potential revenue would be divided in the following ways:
State Share (50 percent) $ 105,350,000
General Fund (75 percent) $79,012,500
Education Trust Fund (25 percent) $26,337,500
Municipal Share (25 percent) $52,175,000
County Share (25 percent) $52,175,000
This estimates if realized would certainly go along way to ending Alabama’s financial woes.
Under the MFA business with sales below $500,000 annually are exempt but even this provision has its critics.
A favorite of many Alabama conservatives, Senator Jim DeMint of South Carolina not long ago wrote in the “Wall Street Journal,” “At its core, this is a nationally mandated Internet sales tax on businesses. Once a single state demands these sales tax collections under the new law, businesses in every other state would be forced to comply with that state’s tax laws. Dozens of states are eagerly waiting to raise those taxes, as soon as Washington opens the floodgates.”
The burden on Internet entrepreneurs could be staggering. There are already nearly 10,000 state, local and municipal tax jurisdictions to navigate nationwide.
Just complying with a single state’s tax laws costs small businesses disproportionately more than larger firms that can afford accounting and technology teams to help them work through these arcane laws.
A 2006 PricewaterhouseCoopers study found that tax-compliance costs for small businesses (those having $1 million to $10 million in annual sales) are nearly 2.5 times greater than those of larger firms. For businesses under $1 million in sales, those costs explode to 16 cents on every dollar of revenue.”
Of course, the contra argument is made that since 1935 consumers have been required in most states to self track and remit use tax on their out-of-state purchases. Advocates of the remote tax law say nothing has changed that all purchases made on the Internet are taxable already. They argue that consumers cannot be trusted to pay the taxes owed so the tax must be collected by the seller as it is when purchasing from a brick and mortar store.
The conservative think tank Heritage Foundation said in April, “[T]here is no denying that businesses and individuals will pay more in taxes out of their pockets as a result of enactment of S. 1832. Indeed, that increase in what remote sellers will collect from businesses and individuals and remit to the state in tax revenues is precisely why many state governments want Congress to enact S. 1832.”