By Alex Fitzsimmons
People who make out-of-state purchases, including over the Internet, are supposed to pay sales and use taxes on those purchases. But as a new study indicates, just a tiny number of people actually report the use taxes they owe.
Only 1.6 percent of taxpayers nationwide reported use taxes on their 2009 tax returns, according to data from a Minnesota state House report. Rhode Island had the lowest participation rate, with only 0.2 percent of taxpayers reporting use taxes.
At a Senate Finance Committee hearing last week, NCSL submitted written testimony in support of the Marketplace Fairness Act, which would provide states the authority to require remote sellers to collect state sales taxes. The Marketplace Fairness Act, which enjoys bipartisan support in Congress, would close this tax loophole and level the playing field for brick-and-mortar stores, many of which are small businesses.
“Let us make this very clear: State legislators are not advocating any new or discriminatory taxes on electronic commerce,” wrote NCSL’s Task Force on State and Local Taxation of Communications & Electronic Commerce. “We desire, however, to establish a simplified sales and use tax collection system that allows sellers, regardless of where they are located, to collect and remit the legally owed sales and use taxes.”
“We need to make sure our federal, state and local tax systems are working together,” said Senator Max Baucus (D), chairman of the Senate Finance Committee. “As part of tax reform, we should ask how we can help states collect taxes owed and how we can encourage standard rules to protect taxpayers from multiple taxes and needless complexity.”
NCSL announced its support for the Marketplace Fairness Act last November. In a letter to congressional leaders, NCSL praised the bipartisan group of co-sponsors for attempting to close the sales tax loophole.
States and localities in 2012 will lose about $23 billion in uncollected sales and use taxes, with more than $11.4 billion from e-commerce sales, according to a University of Tennessee study. The same study found that only 4 percent of buyers said the collection of a use tax would affect their decision to purchase products online.