Legislature mulls Internet sales tax plan
Capital News Service
Friday, January 30, 2004
LANSING -- Is a Kit Kat a candy or a cookie?
In some states, it’s a candy and therefore taxed. In others, it’s a cookie because it contains flour and is exempt from taxation.
Michigan will help resolve this and other tough questions if it joins a coalition of 40 states to create uniform definitions of products and require Internet retailers to collect sales taxes. A proposal is expected to be introduced to Legislature in early February.
Currently, the state cannot force out-of-state e-tailers to collect 6 percent sales tax on products bought by Michigan residents. And as of yet, there exists no national definition of goods and services, therefore muddling an already confusing tax system.
The primary goal of the multistate Streamlined Sales Tax Project is “to put in place a collection system for an existing tax,” said Rep. Dianne Byrum, D-Onondaga Township, one of the lead sponsors. Byrum was careful to note, however, “It’s not a new tax and it’s not an Internet tax.”
The proposal will include “significant savings” incentives for Internet retailers, mail-order catalog companies and other out-of-state businesses that voluntarily participate, said Byrum.
But critics argue that Internet sales taxes will hurt e-tailers and consumers who buy online.
“Why should a company in Texas pay Michigan taxes?” asked Rep. Leon Drolet, R-Clinton Township. “They don’t use our roads or our schools, so why should they pay our taxes?”
Michigan loses between $200 million and $300 million per year because Internet and mail-order retailers are not required to collect sales tax, said Larry Meyer, chief executive officer of the Michigan Retailers Association, a lobbyist for the compact. That’s about $150 million to $225 million per year lost to Michigan schools.
But, argued Drolet, “that’s $200 to $300 million that’s staying in Michigan because it’s staying in people’s pockets.”
Proponents of the bill, such as Byrum, say, “It’s a fairness issue to Main Street brick-and-mortar retailers.”
The bill is intended to level the playing field between local brick-and-mortar businesses and e-commerce, she said.
Karen Richardson, owner of Hanna’s Book Shop in Mount Clemens, agrees. “Many businesses, especially independent ones, have been affected by the Internet. Small businesses can’t compete with many of the deals that they [large e-tailers] offer.”
And, “it’s very hard for a small business to maintain a Web site,” she said. “We’re just trying to survive.”
Local stores such as Richardson’s thrive because of “loyal customers that are conscientious about using our services,” she said.
Drolet argues that most people don’t decide to buy on the Internet because of tax reasons. Also, Internet retailers have other costs that local brick-and-mortar merchants don’t worry about.
While Internet sellers are subject to sales taxes in the 45 states that have such a levy, calculating and collecting these varying taxes has proven an impractical task, said James Hallan, president of the Michigan Retailers Association. The Michigan proposal will include ways to make tax calculation and collection simpler.
But until the federal government authorizes the states to require sales tax collection by out-of-state retailers, doing so is purely voluntary.
“That’s the beauty of this project,” said Byrum. “States don’t have to wait for federal government to act.”
The Internet bill, if passed, would benefit Michigan’s K-12 schools, higher education, libraries, fire departments, roads and other public services that are supported by sales taxes, advocates say.
Other proponents of the project include the Michigan Restaurant Association, Michigan Auto Dealers, the Michigan Chamber of Commerce and the Small Business Association.
Copyright 2003, Capital News Service, Michigan State University School of Journalism