Idaho lawmakers now have a path to increase taxes on Idahoans through the online sales tax.
The question is: Will they take it?
In late November—Black Friday, to be exact—the U.S. Supreme Court refused to a hear an appeal on a lawsuit by online retail giants Amazon.com and Overstock.com against an online sales tax law enacted by the state of New York in 2008. The case is complicated, but the essence of it is this: If Idaho lawmakers write an online sales tax law in a particular manner, they can collect from online buyers and reap millions in new cash from taxpayers.
The National Conference of State Legislatures estimates that Idaho lost out on about $103 million by not collecting the online tax, or about 3.5 percent of the state’s 2013 budget. Another study pegged the figure at $46 million in 2012.
Idaho state law already requires residents to pay for online purchases through the “Use Tax.” That system, though, is an “on your honor” process. According to the Idaho State Tax Commission, 9,600 residents paid about $540,000 in use tax in 2012. The agency said that’s “a fraction” of what it thinks taxpayers owe the state.
Gone from the Idaho Legislature is a leader to back the push. Former Rep. Leon Smith, R-Twin Falls, held that role before leaving the Statehouse in 2012. Smith failed repeatedly to convince his colleagues to pass legislation that would have allowed Idaho to explore the state’s path forward to collecting the tax.
Still, that hardly means the idea isn’t without support. Rep. Paul Romrell, R-St. Anthony, counts himself among those who would like to see lawmakers pursue the idea.
“We just need to find more revenue,” Romrell told IdahoReporter.com. “This is one of the cleanest and easiest streams (of revenue) we have.”
The freshman legislator, who doesn’t hold a seat on the House Revenue and Taxation Committee, said he wants more taxes to fund education and mental health initiatives.
On that point, Romrell has company. Superintendent of Public Instruction Tom Luna’s office confirmed he supports online sales tax collection as an avenue to provide more money for Idaho schools.
But what of the possibility voters might see new online tax collection as a tax hike, which is a sensitive issue in 2014, an election year. Romrell doesn’t much care. “I’m there to vote for what I think is important for Idaho,” he said. “It’s not important for me to get re-elected.”
Online sales tax opponents usually offer up another reason to oppose the idea: It is, they say, a form of taxation without representation. Taxpayers from the other 49 states would pay taxes in Idaho, but be legally prevented from voting for the people who set the tax rates.
Still, Romrell doesn’t care. “It wouldn’t be enough of an argument for me,” he said.
If Romrell is looking to create a backlash from voters, he might be traveling down the right path. A Gallup study released in June revealed that 57 percent of adults don’t support an online sales tax. Voters 18-to-29-years-old possess an even greater distaste, opposing the idea 73 percent to 27 percent.
Groups like the Americans for Tax Reform (ATR), a think tank based in Washington, D.C., oppose the online sales tax for myriad reasons, notably due to the burden it would place on small businesses.
In testimony to the U.S. Senate on the issue, ATR analyst Kelly Cobb said the complexity of the online sales tax would crush mom-and-pop shops.
“In fact, the scales would be tipped against remote retailers, who would have to comply with the 9,646 tax jurisdictions across the country, while brick-and-mortar stores would comply with only the one where they are located,” Cobb wrote.
Romrell said lawmakers likely won’t take up the issue next year. He also said he is not interested in championing the cause, due to his freshman status. “I still have a lot to learn,” he said about pushing bills through the Statehouse.
There may be another avenue soon open to politicians eager to tax Internet purchases.
Earlier this year, the Democratic Senate—with some Republicans tagging along—passed the Marketplace Fairness Act, a measure to allow states to collect the tax. States are hamstrung by the U.S. Supreme Court’s Quill decision, which prevents states from collecting online sales tax from companies like Amazon.com or Overstock.com unless the businesses have a physical presence—like a shipping warehouse or storefront—in the state.
The Republican-controlled U.S. House, though, has put the brakes on the measure for now. But proponents want to see the issue come up in Congress in 2014.