President Trump supports legislation allowing state and local governments to collect sales tax on all internet purchases.
Addressing a hearing of the House Ways and Means Committee, Treasury Secretary Steven Mnuchin says the president “feels strongly” that consumers should pay the same sales tax on online purchases that brick and mortar retailers collect.
When ecommerce began to take off in the 1990s, online retailers for the most part did not collect sales tax. It was a break for consumers, but brick and mortar retailers complained about unfair competition. State governments fretted that they were losing tax revenue.
Today, many retailers – but not all – collect state sales tax when a consumer completes an order. In most cases, online retailers charge sales tax if they have a physical presence in the state.
Last year, Amazon started collecting sales tax in all 50 states and the District of Columbia, although it does not always charge tax on purchases from third-party vendors.
Mnuchin told lawmakers the President believes sales tax should be collected on all purchases, no matter how they are made. Trump has previously said that not collecting state sales tax gives an unfair advantage to online retailers.
Could it help with the deficit?
Allowing states to increase their sale tax collection could address a growing deficit created by the latest budget bill passed by Congress, which increases both domestic and military spending.
As we recently reported, the President's infrastructure spending proposal would also allow states to impose tolls on existing interstate highways to raise money for infrastructure improvements.
Any internet sales tax law would have to take a 1992 Supreme Court ruling into account. More than a quarter century ago, the high court ruled that requiring out-of-state retailers to collect sales tax for the jurisdiction of each and every customer would be an unreasonable burden.
At the time, however, internet sales were minuscule. It's a different story today, and many states feel they are leaving millions of dollars on the table.
According to the U.S. Census Bureau, ecommerce sales in the U.S. in just the fourth quarter of last year were estimated to be $119 billion. There is no data showing how much of that revenue was not taxed.