Tax hikes including an “Amazon Tax” have been proposed as the answer to a $1 billion budget gap as the Pennsylvania legislature continues negotiations in Harrisburg this week.
Currently, Pennsylvania residents pay no sales tax on Internet purchases from companies with no physical presence in the state.
In the summer of 2011, the Pennsylvania legislature and Republican Gov. Tom Corbett refused to pass a law that would impose a sales tax on Pennsylvania residents for items purchased online from out-of-state retailers.
Later that year, the Pennsylvania Department of Revenue announced they would begin requiring online vendors with a physical presence — or a “nexus” — in Pennsylvania to begin collecting sales tax, claiming the current tax code provided for such a tax collection.
Amazon.com, for example, has six fulfillment centers in Pennsylvania, which constitutes a nexus. The deadline for compliance was originally set for January 2012, but the Department of Revenue pushed back the deadline to September 2012 as the transition proved difficult.
The tax was implemented in Pennsylvania without the passage of legislation. The Department of Revenue had collected $70 million in revenue from the nexus law as of January of this year.
A more sweeping sales tax proposal, the Marketplace Fairness Act, is making its way through Congress. The Marketplace Fairness Act would put in place nationwide standards for the collection of sales taxes by out-of-state retailers.
If the Marketplace Fairness Act passed, online vendors would be required to collect sales taxes for every state and municipality from which their products are purchased.
Support for an Online Sales Tax
Support for an internet sales tax has come from both sides of the aisle in Pennsylvania. In 2013, Pennsylvania state legislators publicly voiced their support for passage of the Marketplace Fairness Act in passing House Resolution 571. State Rep. Justin Simmons (R-Lehigh) was the sponsor of that resolution.
“While the recent measures by the Department of Revenue to improve collections have resulted in increased compliance, much remains uncollected,” reads the resolution. “The inability to collect sales and use tax on purchases made from retailers that do not have a physical presence in this Commonwealth has created a disadvantage for this Commonwealth’s brick-and-mortar retailers that are required to collect the sales and use tax.”
Very few legislators voted against the resolution — it was passed 189-10. Nine of the “nay” votes were Republicans.
State Rep. Gene DiGirolamo (R-Bucks) is the driving force behind the push for the tax in Pennsylvania. In his proposed 2014-15 budget, he suggests cracking down on collection of this tax, which he estimates will bring in $100 million in the upcoming fiscal year.
DiGirolamo has also suggested imposing a 4.9 percent severance tax on Marcellus Shale, taxing smokeless tobacco and e-cigarettes, and delaying the phase out of the Capital Stock and Franchise tax.
Also lobbying for DiGirolamo’s alternative budget plan is the CLEAR Coalition, an alliance of Pennsylvania’s largest public-employee unions.
Public-sector unions strongly support higher taxes. As Pennsylvania AFL-CIO President Rick Bloomingdale said in 2012: “But remember, we live off tax revenue.”
Even though the nexus compliance law has been in place in Pennsylvania since 2012, issues with tax collection still remain.
The Pittsburgh Post-Gazette reported out-of-state businesses are improperly collecting tax on sales-tax exempt items, such as clothing.
The Pennsylvania tax code can be tricky to sort out. Clothing cannot be taxed, but swimwear and fur coats can be. Soda is taxed, but candy and gum are not.
The nexus law also discourages businesses from having a physical presence in Pennsylvania or even partnering with a business that does. Amazon terminated its affiliate programs with California businesses after California put a similar law in place and began treating Amazon as an in-state company because of its in-state affiliates.
But the issues with implementing the Marketplace Fairness Act and policies like it run even deeper, said Andrew Moylan, executive director and senior fellow at R Street Institute.
“One of the big concerns that we have had is what this does to tax law,” Moylan told Media Trackers. In the past, it had been “your taxing authority ends at your borders. And this breaks down this wall — taxes without borders.”
If implemented, online businesses would have to become experts on thousands of tax codes overnight.
“And these businesses would be under legal force if they get it wrong,” Moylan added. “They would be required to defend themselves in a Pennsylvania court.”