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In a rare bipartisan moment, something significant happened last week in the United States Senate and New Mexico’s two senators, Tom Udall and Martin Heinrich, helped to make it happen by voting to end the chaos and misunderstanding surrounding the sales tax and online purchases.
And good for them and the 67 other senators who joined in bipartisan passage of the Marketplace Fairness Act.
One of the major fictions about commerce today is that Internet sales are immune from what we here in New Mexico call the gross-receipts tax, but is more commonly known elsewhere as the sales tax.
Yet, while the great bulk of online sales do go tax free, so to speak, others are in fact legally subject to the sales tax in New Mexico and other states with such a tax.
By law, any retailer with an outlet, store or office in a state where a consumer makes an online purchase is required to collect whatever rate the sales tax is levied. So if you live in New Mexico and purchase a coat from Eddie Bauer, you are obligated to pay the 5.125 to 8.6875 percent (depending on location) gross-receipts tax levied on that sale.
Why? Because Eddie Bauer has an outlet in New Mexico.
What’s more, some 45 states, New Mexico included, actually have laws requiring consumers to pay the requisite sales gross-receipts taxes directly to the state on any Internet purchases they make.
Veteran Albuquerque tax guru, CPA Peter Brunson, says “some states even have an online sales tax box on their tax forms that you can check when filing your annual tax return.” Need it be said that, despite its official gross-receipts tax on Internet sales, New Mexico makes no such provision on its tax return forms?
Small wonder some folks have come to regard Internet retail transactions as a tax-free zone: It isn’t collected at the time of online sales, and purchasers may not even realize they are obligated to pay it.
It’s a loosey-goosey arrangement with high costs. A couple of years ago, the Risk and Compliance Journal of the Wall Street Journal estimated that “state and local governments would lose some $10 billion in uncollected e-commerce taxes in 2011.”
Nor is it a secret that many locally-based retailers, large and small, have long cried foul about the competitive disadvantage they face as Internet sales grow apace, in part because many of those sales are less expensive absent a tax.
“Right now,” notes Heinrich, “out-of-state (online) retailers who do business in our state can offer lower prices than our local businesses simply because they aren’t obligated to pay sales taxes.”
Heinrich and Udall supported the Marketplace Fairness Act precisely because it gives states and localities a framework for enforcing the sales tax on Internet sales. Moreover, Udall adds, “It has broad support from mayors and organizations throughout the state and country because it will help keep local businesses open and jobs in their communities.”
Reports are that New Mexico lost 3,000 businesses and the jobs those businesses provided between 2007 and 2011. The fury of the Great Recession accounts for most of these setbacks. But New Mexicans have no choice but to regain that lost ground and those lost jobs, and leveling the playing field on which local and Internet retailers compete is a good place to begin.
The bipartisan support that moved the Marketplace Fairness Act out of the Senate last week was calculated to do just that — level the field.
What happens when the measure comes before the U.S. House, where meritorious legislation is often DOA these days, is another matter.