Durbin says online sales tax needed to save states, brick-and-mortar stores

“My state is struggling, terrible budget problems,” Durbin said. “We’re in the red with deficits, pension system is in trouble. Money that should be collected for sales tax, not being collected.”

{mosads}The bill being considered today would allow states to collect the sales tax from online retailers, most of which are allowed to escape the collection of taxes from the 46 states that have a sales tax. Durbin said few people are aware that they are supposed to pay this tax each year.

“It’s really an honor system, that’s what it comes down to,” he said. “It turns out only one out of 20 people in Illinois even know this exists. Five percent of the population knows.”

Durbin said he has paid the tax on his own online purchases, ever since his accountant asked if he wanted to pay them. “I said, ‘I think I do,’ and I did, and I have ever since,” Durbin said.

Because few pay the online tax now, the Marketplace Fairness Act would help enforce existing law, by making online retailers assess the tax as people buy things online. This could be done by getting the purchaser’s zip code, and applying the applicable state tax at the time of purchase.

“This is not a new tax. It creates a method for compliance or collection of an existing tax,” he said.

Durbin added that it’s not unreasonable to ask these online companies to pay taxes to each state where sales are made, as deliver of the goods bought uses state roads and other state infrastructure.

Both he and Sen. Mike Enzi (R-Wyo.) also defended the bill as something that would allow brick-and-mortar retailers to remain competitive. With the non-enforcement of sales taxes on purchases from online companies, Durbin said brick-and-mortar retailers are used by many people as a place to browse for goods, but not to buy them.

Instead, they return home later and buy them online for a lower price, sometimes because there is no sales tax.

“It’s called ‘showrooming,’ and it’s happening more and more,” Durbin said. “Why would somebody try the shoes on and not buy them? Go to the Internet. In many instances, it’s because many Internet retailers do not collect sales tax.”

Enzi said the absence of a sales tax can mean online stores offer the same goods for 5 to 10 percent less.

“Thousands of local businesses are forced to do business at a competitive disadvantage because they have to collect sales tax and use tax, and the remote sellers don’t,” Enzi said. “We should not be subsidizing some taxpayers at the expense of others.”

Despite their arguments, many Republicans are expected to oppose the bill as one that would essentially raise taxes on companies involved in a high-growth area of the economy. Those taxes would also be passed to the consumer at a time of uncertain economic growth and higher-than-average unemployment.

Senate Finance Committee Chairman Max Baucus (D-Mont.) has also opposed the bill, partly over fears that would require Montana-based Internet retailers to track of purchases made by people in states that have sales taxes, and collect and remit taxes on those sales to other states.

At 5:30 p.m., the Senate will vote on a motion to end debate on a motion to proceed to the Marketplace Fairness Act, S. 743.