Senator Jay Rockefeller said small businesses and consumers in West Virginia will benefit under legislation allowing states to collect sales taxes from online retailers rather than asking every state resident to calculate his or her whole separate "online tax bill"when they file taxes each April.
Rockefeller's remarks came as he chaired a Senate Commerce Committee hearing examining the bipartisan Marketplace Fairness Act, which is supported by Amazon.com and the National Education Association, among other advocates. Rockefeller is a co-sponsor of the legislation, which exempts small online businesses making less than $500,000 from state sales taxes.
"This debate is not about any new taxes. The sales tax remains just as it is. Instead, this new bill would finally give states the flexibility to collect taxes that are currently owed under existing law, but in a way that doesn't unnecessarily burden taxpayers with sifting through receipts and pulling out their own calculators to crunch numbers. It's a simple idea with support from both Republicans and Democrats," Rockefeller said.
"It's good that we have mobile technologies and online purchasing options, but these innovations should not put small businesses at a disadvantage," he said.
Under West Virginia law, state residents are required to calculate the amount of goods purchased online and claim them on their state tax returns. West Virginians have found this system confusing and burdensome. Requiring people to collect every online packaging slip receipt throughout the year and calculate out 6% sales tax to later pay with their tax returns simply doesn't make sense. The Marketplace Fairness Act would put the onus on to retailers and simplify the tax code.
"When this idea was first considered, it was not popular," Rockefeller said. "But over time, more people have come to understand that this is an issue of basic fairness and critical to a state's fiscal health. In West Virginia we are fighting to keep our small towns vibrant -- we need local retailers to make that happen. I believe we can have both a vibrant Main Street economy and e-commerce businesses."
According to estimates, West Virginia loses anywhere from $56 million to $103 million per year from the lack of sales tax revenue on internet purchases. The Marketplace Fairness Act is designed to change that.
Supporters of the Marketplace Fairness Act include 55 national trade associations and 96 state and local trade associations including the West Virginia Retailers Association.
Today, a West Virginia merchant is required to collect sales taxes on every sale they make in state. Online merchants do not have to collect these sales taxes, meaning many online retailers can undercut West Virginia merchants. The ability of online retailers to undercut brick and mortar retailers on prices has led some businesses to cut back staff or close their doors altogether.
Marketplace Fairness means that online retailers have to compete on the same playing field as West Virginia retailers, collecting and remitting the tax on goods sold to West Virginia residents.
Currently, West Virginia consumers, like residents of other states with sales taxes, are required to keep track of how much sales tax they should have paid on online and out-of-state purchases, and pay this tax to the state on their annual tax returns. In reality, many people don't do this because of the complexity of keeping all of these receipts for an entire year and adding a 6% sales tax to each. Also, most states can't afford to
properly and fairly enforce this rule as it would cost states millions of dollars and thousands of hours to audit otherwise tax-compliant individuals.
Marketplace Fairness would mean that West Virginia residents are no longer violating state tax law and no longer are subject to burdensome record-keeping and reporting requirements. Instead, the online merchant, using software designed to calculate taxes owed, would collect West Virginia sales taxes and send them to the state government.