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Online Transactions Make Tax Collections Difficult

With online sales exploding, it’s becoming increasingly difficult for Pennsylvania to collect its sales and use taxes.  In fact, the state Department of Revenue estimates $350-million dollars worth is going uncollected each year.  The problem is that online retailers are under no obligation to collect the sales taxes of states in which they have no “nexus” – or physical presence.

Many Pennsylvania brick and mortar stores believe they are at a competitive disadvantage.  The State House Finance Committee heard from several such businesses at a recent hearing.  Committee member Scott Boyd (R-Lancaster) tells us it’s a fairness issue.  “We just have to figure out a way of leveling the playing field so our brick and mortar stores aren’t put out of business.”

Committee chairman Kerry Benninghoff (R-Centre) tells us it’s both about fairness and lost revenue.  “You have a commonwealth that’s $4.2-billion dollars in debt and you have an option to collect $350-million dollars in additional revenue.”  Both Benninghoff and Boyd say the revenue is already owed to the state.  “It’s not a new tax,” Benninghoff says.

Several states (including New York and Illinois) are already trying to compel online retailers to collect and remit sales taxes, but those laws are being challenged in court.  Testifying on behalf of the Direct Marketing Association, Ron Barnes told the Finance Committee, “The solution is to have this conversation at the federal level.”  Barnes notes that retailers would otherwise have to keep up with 7,500 taxing jurisdictions.

There was no legislation before the Finance Committee, this week, but Chairman Benninghoff hopes that will change before the end of the legislative session.

For its part the state Department of Revenue is going to make it easier for Pennsylvania consumers to voluntarily report and remit their use tax once a year, through a new tax line on the PA-40 form.  They estimate it could generate $5 to 6-million dollars a year.  The “use tax” applies to taxable purchases made from online retailers and others, which do not charge and collect the sales tax.  Its rate is identical to the sales tax, but the Revenue Department testified that “a very small number” of individuals self-reported last year.