A bill is expected to be introduced in Congress this month that would grant states the power to require online retailers to collect the taxes.
Proponents argue that the current loophole hurts states such as Nevada that are dealing with severe revenue shortages and growing budget deficits.
“This could certainly help the state and local government budgets, as increased sales tax collection and compliance mean more revenues,” said Tray Abney, director of government relations for the local Chamber of Commerce.
Consumers are supposed to tally their online purchases and pay the necessary sales taxes every April, but this usually doesn’t happen.
“Remember, every Nevada resident owes taxes on goods that are purchased over the Internet, even if the seller does not charge them for it,” Abney said. “This is not a new tax; it is an effort to more efficiently collect existing taxes.”
Moreover, a 1992 U.S. Supreme Court ruling found that retailers cannot be required to collect the taxes on out-of-state purchases unless the companies have offices in those states.
Supporters argue that local small businesses are at a competitive disadvantage with online retailers because of the tax issue.
“Our opinion is there does need to be a change so all businesses operate on the same playing field,” said Bryan Wachter, director of government affairs for the Retail Association of Nevada (RAN).
Online retail sales have spiked dramatically during the economic recession. For example, Internet retail spending jumped 14 percent in the second quarter of this year, marking the third consecutive quarter of double-digit growth, according to comScore, an Internet marketing research firm.
These figures have drawn complaints about the sales tax loophole from members of the RAN, Wachter said.
“The current system offers a perverse incentive to purchase things online, at the detriment to the businesses that are located here and invest in our communities,” Abney said.
But if state governments hope to have their bond rating improved with new tax revenues, they might want to think again.
“At this time, Standard & Poor’s Ratings Services does not think that the amount of revenue states are foregoing by not collecting tax on Internet sales is significant enough to influence state or local ratings,” S&P analyst David Hitchcock said in a recent report. “Nevertheless, Internet commerce is growing faster than overall retail sales, and if trends continue the loss of tax revenue could become significant.”