The majority of Wyoming’s online shoppers have been breaking the law.
Sen. Mike Enzi, R-Wyo, wants to change that.
Shoppers haven’t been paying state sales tax on the items they buy online, which sidesteps Wyoming law and keeps millions of dollars out of the state’s coffers. The senator doesn’t want to chastise Wyomingites for not paying. He wants states to collect more money so they can afford to pay for sewer, police, roads and other functions of local government, and he authored a bill to do so, the Marketplace Fairness Act. It passed the Senate by a vote of 75-24 on March 22 and is awaiting a vote in the House.
Enzi’s bill aims to close a loophole that shields out-of-state retailers from collecting retail sales tax. Retailers don’t have to collect it, thanks to the 1992 Supreme Court decision in Quill vs. North Dakota, which gave sellers the choice to collect and put the onus on shoppers to pay the sales tax. When a Wyoming consumer buys a CD from an online vendor in California, they should be asking the Wyoming Department of Revenue for a sales tax form. But they’re not, said Dan Noble, administer of the Excise Tax Division with the Department of Revenue.
“I think there are three people in Wyoming who send it in every year,” Enzi said with a laugh. “It’s hard for people to keep track of. You need a collection method.”
Employees in the department of revenue fill out the form, Noble said. “But we don’t see a steady stream of people coming in and asking for them,” he said.
The state would have to audit taxpayers to enforce the sales tax law, Noble said. “The taxpayer isn’t expecting that,” he said.
Wyoming businesses often get slammed at tax time because out-of-state vendors don’t tell them that the goods they are purchasing are being charged without sales tax. If the state does an audit assessment on a company’s out-of-state transactions, the company will owe — all at once —what they haven’t paid the state, Noble said.
Only three Wyoming businesses will have to comply with the new law if it passes the House, Enzi said. Businesses making less than $1 million per year will not be obliged to charge sales tax under the law.
Supporters of the bill say it puts online retailers on the same playing field with brick-and-mortar retailers. Online retailers have many advantages, said Howard Gleckman, a resident fellow at the Tax Policy Center. They don’t have to pay rent. They can do it all from a warehouse, and many don’t even have to house the inventory, having the product shipped directly from the manufacturer to the buyer, Gleckman said.
“Why should a state decide to subsidize companies like Amazon to the detriment of local retailers?” he said.
Stores such as Wal-Mart and Best Buy have lobbied hard for the bill. Consumers are increasingly using showrooms in big-box stores to peruse merchandise. But they’re not buying the goods they seek at the brick-and-mortar stores. They are using their cell phones to take pictures of the bar codes, going online and buying the goods from an online retailer who sells for less, Enzi said.
“Particularly with large items, the difference between the item in the store and online is the amount of sales tax,” Enzi said.
The changing landscape of retail shopping has critics of Enzi’s bill questioning whether the law is a way for big-box stores to kill their online competition.
“It’s clearly one motivation,” said Pete Sepp, executive vice president of the National Taxpayers Union. “Businesses often go to the government to try to erase a competitive advantage or saddle a disadvantage on other firms.”
Advocates for small businesses say there will be large costs for compliance and liability that stores such as Wal-Mart already have in place.
With nearly 10,000 tax jurisdictions in the country, businesses will have to comply with every single tax code in the nation if they want to sell their goods everywhere. Noncompliance could mean a costly audit from the states where sellers are sending their products, said Bartlett Cleland, policy counsel for the Institute for Policy Innovation, a Texas-based free-market think tank. With every zip code, tax codes can vary, Cleland said. If a business is selling candy, for example, some tax jurisdictions consider it a confection, others a food and others a food item. The tax code changes with the description of goods in each state and will force businesses to hire more accountants and lawyers, he said.
“It’s easy to sit in the Wal-Mart ivory tower in Arkansas and say, ‘This is simple to do,’” Cleland said.
Enzi said compliance for all businesses will be simple. All businesses will need is a zip code and the state-provided program to collect the sales tax from all jurisdictions.
“With the program, there’s no extra knowledge you have to have,” Enzi said.
If the collection mechanism isn’t functioning, businesses will not be liable to collect the tax, Enzi said.
States can choose whether to adopt the law, Enzi said. It’s unknown how much Wyoming would expect in revenues. Nationwide, Enzi and other supporters of the bill expect around $23 billion in revenues from the legislation.