May 22, 2018
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Maine losing millions in uncollected taxes on Internet sales

By Mal Leary, Maine Public

AUGUSTA, Maine — On “Cyber Monday,” the Monday after Thanksgiving, Americans shopping online spent about $900 million.

Many of those sales should have been subject to sales taxes, but those taxes in many cases were never collected. With this Christmas season expected to set records for online sales, Maine is one of the states losing revenue.

“We don’t really know how much we are losing, but the estimates are significant,” Sen. Joe Perry, D-Bangor, co-chairman of the Legislature’s Taxation Committee, said last week. “You know, just from talking with people, that there is more buying on the Internet from and Cabela and all the rest out there.”

He said online sales efforts offering free shipping this season have added to the allure of shopping by computer instead of trudging from store to store in the snow and cold.

“This problem, a loss of revenue for the state, is just going to grow, and we need to address it,” Perry said. “I think it should be a top priority of the committee this session.”

The most recent study, from researchers at the University of Tennessee last spring, estimated Maine’s loss from sales taxes as a result of online sales where those Web-based companies do not collect the tax for the state will be $21 million this year. The study estimated that in 2010 that figure would grow to nearly $28 million in lost revenue.

“Collecting what is owed the state is always something that we want to do,” Finance Commissioner Ryan Low said.

But he acknowledged there is no attempt in the proposed state budget revisions to improve those collections.

“We hope the committee will look at it,” he said. “If the alternative is increasing revenue to pay for shortfalls or collecting taxes that are already due, we should lean to the second one.”

What complicates that goal is a pre-Internet shopping ruling by the U.S. Supreme Court that said a retailer or other seller of goods could not be forced to collect sales taxes for another state unless that seller has a “nexus” or physical presence such as a warehouse or retail store.

A totally Web-based retailer, on the other hand, has a physical presence only in the state where it operates.

“We understand the problems an Amazon faces,” Perry said, “with some 7,000 or so tax jurisdictions across the country, but they still should be collecting the tax for the states.”

While Maine allows only the state to levy a sales tax, in many states local municipalities or regional taxing districts also have the authority to charge a sales tax. Requiring online retailers to keep track of all those districts and the varying tax rates causes extra cost for the retailers.

Low said Maine has participated in the streamlined sales tax initiative that has sought to develop uniform definitions of products to reduce the administrative burden on Internet retailers. But that effort has stalled and waits further action by Congress.

“We need some leadership in Congress on this,” Perry said.

Low said that even when the tax is not collected by the retailers, buyers still owe the tax. That is because when lawmakers sought to grapple with mail-order catalog sales years ago they made the sales tax a sales and use tax requiring that a tax be paid for the privilege of using that new appliance in Maine.

“People are supposed to report these purchases on their income tax form, but I suspect the compliance rate is pretty low,” Perry said.

He said local retailers are hurt by the Internet sellers and collecting the sales tax from Internet sellers will help “level the playing field” for the local retailers.

Not everyone is enthusiastic about improving the sales tax compliance effort. Sen. Richard Nass, R-Acton, the GOP senator on the Taxation Committee, said that while he understands the desire to collect all the taxes that are due, he is sympathetic to Mainers looking to save a little on their purchases by avoiding the state sales tax.

“Anytime that we can have our citizens not having to pay a tax is a good thing,” he said. “We don’t have a problem with not collecting taxes; our real problem is a spending problem.”

But, Nass said, if the committee wants to explore ways to improve sales tax collections, he would participate in that process.

New York passed a state law requiring the Internet retailers to collect the tax for the state, but Amazon sued. The company lost in the first court ruling on the matter. The case is on appeal and could lead to legislative action in Maine and other states if the New York law is upheld by the U.S. Supreme Court.

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