Governor Terry Branstad says Iowans who buy merchandise on-line and do not pay the state sales tax on those purchases should start to pay the tax.
Branstad has written Iowa’s congressional delegation, urging them to support a federal law which would undo a court case that has prevented states from actively collecting sales taxes on internet sales.
“The sales have just dramatically increased,” Branstad said this morning during his weekly news conference. “It puts our local retailers at a competitive disadvantage.”
The so-called “U.S. Marketplace Fairness Act” has cleared the U.S. Senate and awaits action in the U.S. House. Key conservative groups like the National Taxpayers Union oppose the proposed law, saying it amounts to a tax hike, particularly on younger Americans who do much of their shopping online. Branstad disagrees.
“Those people that are circumventing the payment of sales tax because they’re buying out-of-state, should we help them to the disadvantage of the people that are creating businesses and jobs in the state of Iowa and paying property taxes and collecting the sales tax for the state?” Branstad asked. “I don’t think so.”
Branstad is making a promise about what he would like to do with extra tax revenue that would be raised from online sales, however.
“I want to assure that, in Iowa, we will reduce taxes by however much additional revenue the state would gain if this legislation is approved,” Branstad said.
Branstad has indicated he intends to propose an income tax cut for Iowans in 2014. A 1992 U.S. Supreme Court ruling allows states to collect sales taxes from on-line sales, but only if the purchaser voluntarily submits the tax, making sales tax charges on internet sales difficult, if not possible, for states.
According to an analysis by the National Conference of State Legislatures, states would have collected more than $23 billion from internet sales last year if states had been able to charge state sales taxes on online purchases. Supporters of the proposed law say brick-and-mortar businesses lose out when customers window shop locally for goods, then go online to buy and avoid local sales taxes. Critics say small online businesses will have to buy expensive software to calculate and collect state sales taxes.