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Legislature takes first step to position Idaho to collect online sales tax

Legislature takes first step to position Idaho to collect online sales tax

Dustin Hurst
February 22, 2012
Dustin Hurst
Author Image
February 22, 2012

Members of the House Revenue and Taxation Committee voted 12-6 Tuesday to begin the march toward collecting online sales taxes in Idaho.

The measure, if passed, wouldn’t mean the start of Internet tax collection, rather that Idaho would standardize its code to conform to commonly accepted terms and rules. The bill wouldn’t make any changes to rates or exemptions.

Essentially, the bill would help Idaho to stand at the ready if Congress allows states to collect internet sales taxes. The Quill decision, a U.S. Supreme Court ruling on the issue, says that unless companies have a physical “nexus” in a state, they cannot be taxed by other states. That means that because Amazon, an online mega-retailer, doesn’t have a company location in Idaho, the Gem State cannot collect taxes on purchases made on the site by residents.

That decision stands until Congress changes the tax law. The so-called Main Street Fairness Act, a federal bill that would allow the practice, has been debated a number of times by Congress, but it’s still waiting in the wings.

The Idaho measure, sponsored by Rep. Jeff Nessett, R-Lewiston, will receive a formal hearing next week, but not everyone is happy about it.

Rep. Lenore Hardy Barrett, R-Challis, called the measure unconstitutional because she believes it would cede the Legislature’s constitutional duty to determine state laws to the federal government. She also argued that the nexus ruling is important because companies pay taxes to cover costs they incur to their own states, including road wear and tear, fire and police protection and other expenses.

“What did Idaho do to deserve that?” Barrett asked of possible online sales taxes from companies outside Idaho. “You better be careful, because you might get what you ask for.”

But Rep. John Rusche, D-Lewiston, said Idaho’s small businesses are at a 6 percent disadvantage because they have to charge state sales tax for online purchase while out-of-state retailers don’t. “I came to the Legislature to make sure the values of my district are represented,” Rusche explained, “and one of those is fairness.”

In the middle sits Rep. Dell Raybould, R-Rexburg, who voted to introduce the bill, but didn’t promise his support for it in the next hearing. Raybould said after years of rejecting the plan, it’s time for the public to have an open hearing on the issue. “This is extremely important legislation,” Raybould said.

Idaho already requires residents to pay taxes for online purchases, but doesn’t have a method to ensure it’s taking in the appropriate amount of revenue. The tax is basically on the honor system, as residents are asked to self-report when they file their state income taxes.

The idea of taxing online sales is supported by Gov. Butch Otter, a position he pronounced three weeks ago in a statewide Chamber of Commerce meeting.

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