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Editorial: Internet businesses should collect state sales taxes

An package is prepared for shipment by

An package is prepared for shipment by a United Parcel Service worker in California. Under a bill now in the U.S. Senate, Internet retailers would be empowered to collect state and local taxes on purchases. Credit: AP, 2010

Local businesses need help in their pitched competition for customers with Internet retailers who've ditched bricks-and-mortar for bits-and-bytes.

Retailers in real-world stores are required to collect sales taxes on their transactions, while out-of-state Internet retailers often don't. That often makes the virtual shopping mall less costly for consumers.

Congress should eliminate that competitive disadvantage by passing the Marketplace Fairness Act. It would authorize states to compel out-of-state Internet retailers to collect sales taxes on their transactions for the state where a customer lives. Don't get mad at us just yet. We know buying tax free is popular. That's why legislation of this sort has languished in Congress for a dozen years. At the start, the strongest point of the don't-tax argument was to allow a nascent technology to flourish. But with online spending totaling $225.5 billion last year, the resulting inequity is what needs to be addressed.

The bill would not impose any new taxes. Consumers are already required to pay sales tax on Internet purchases, but most don't unless an online retailer collects it at the time of a transaction. Currently only online retailers with a physical presence in the same state as a customer are required to collect the tax. New Yorkers are supposed to estimate the uncollected sales tax for online purchases and pay it as a "use tax" when filing state income taxes. But only one in 20 tax filers actually do it. That virtuous few paid $35 million in use taxes in 2011. It's unclear how much revenue the Marketplace Fairness Act would drive to New York and its municipalities, but it should be significant. Bill sponsor Sen. Mike Enzi (R-Wyo.), said $23 billion a year goes uncollected nationally.

Ending the disadvantage for local retailers would also be good for communities. Local shops employ local residents and pay local property taxes. If they prosper, the places they call home do, too.