States Bank on Online Sales Taxes to Increase Revenue, Not Cut Taxes
The Wall Street Journal article “States Bank on Online Sales Tax” from May 20th is a bit misleading. Amy Schatz reports that “Maryland and Virginia both passed transportation bills that counted on the revenue to avoid implementing future state gas-tax increases, which would kick in if Congress turns down the Internet-sales tax bill.” This makes it sound like Virginia and Maryland were trying to save their taxpayers some money by shifting revenue sources, however; this is not the case.
Virginia’s full transportation plan is a net increase of $5.9 billion over five years, and Maryland’s plan is a net increase of $4.4 billion over five years.
Virginia may have erased the 17.5-cent tax on gasoline, but they raised the general sales tax from 5% to 5.3% on all retail sales and applied this rate to gasoline. However, if you live in Northern Virginia or Hampton Roads you’ll be paying and extra .7% in sales tax on local and remote sales for a total of 6%.
Interesting that this is the plan, since the 214 page Streamlined Sales and Use Tax Agreement (SSUTA) calls for tax simplification and many have been arguing that there won’t be complexity in that tax code. Some, outside of SSTUA, have even implied that the goal is one flat sales tax for each state. Clearly that is not what Virginia legislators think.
Since states don’t want to simplify their tax codes, the Streamlined Sales Tax Governing Board has downgraded from uniform sales tax and use requirements to common practices, especially in terms of sales price and credits for taxes paid elsewhere. Each SSTUA member state can have its own definitions of taxable items and terms like "Sales Price".
Here is the Amendment that was accepted:
Section 328: TAXABILITY MATRIX
Original: (1) To ensure uniform application of terms defined in the Library of Definitions each member state shall complete a taxability matrix adopted by the governing board.
Amended: (1) Library of Definitions: To ensure uniform application of terms defined in the Library of Definitions adopted by the governing board pursuant to Section 327 each member state shall complete, to the best of its ability, Section 1 of the taxability matrix.
(2) Common Practices: To inform the general public of its practices regarding certain products, service, procedures, or transactions, adopted by the governing board pursuant to Section 335 each member state shall complete, to the best of its ability, Section 2 of the taxability matrix.
Some other interesting points to compare are the fiscal note linked to the final version of the transportation tax hike signed into law, with McDonnell’s revenue numbers attached to the original tax hike plan. Somewhere along the way, the revenue gained from implementation of the Marketplace Fairness Act decreased when the percentage of tax collected increased. The initial numbers included a collection total of $175.7 million from remote sales tax collection, which only accounts for beginning collection, not the .3% sales tax increase. However, the fiscal note, which does include the .3% sales tax increase seems to claim that remote sales tax collection will bring in $145.9 million. Someone somewhere is fudging numbers.
Speaking to other points in the WSJ piece, it is worth noting that from the initial Senate vote to final passage: nine senators decided to oppose rather than support, more Republicans voted against the MFA than in favor, and all 7 republican senators age 55 and under voted against the bill.
Its nice that states want to cut the income tax, but those cuts should be revenue neutral. As was shown above, states are using fuzzy numbers to talk about how much they could collect from remote sales. For some perspective, the cumulative total of all state general funds is $668 billion; $23 billion is less than 3.5% of general fund revenues. Plus, in 2012, big-box retailers accounted for more than 83% of online sales and therefore collected sales tax due to physical presence requirements. There isn’t that much “new revenue” to go around.