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Senator Bruno discusses the Senate plan to Albany reporters. |
Tax Collection on E-Sales Would Provide Recurring Revenue for Education, Health Care, Property Tax Relief
Tuesday, March 11, 2003
The New York Senate today approved legislation that authorizes New York to join 34 other states and the District of Columbia in an effort to collect sales and use taxes from out of state companies that conduct sales over the Internet or through remote sellers. This effort could result in billions of dollars in new, recurring revenue that would help the state avert future cuts in education, health care and other areas, avoid property tax increases or service reductions.
A University of Tennessee study estimates that New York is currently losing over $1 billion in unrealized e-commerce sales and use tax revenue and is projected to lose $3.6 billion in 2006 and $4.3 billion in 2011. It is estimated that three-quarters of the sales tax revenue that is not being collected are from businesses making purchases over the Internet.
"The collection of sales and use taxes from Internet sales would provide a significant, recurring revenue that would enable us to fund education, health care and other important areas," Senate Majority Leader Joseph L. Bruno said. "It would also provide important revenue for counties to take pressure off real property taxes.
"I have made it very clear that, in order to close a budget gap of almost $12 billion this year and next without resorting to massive cuts or broad-based tax increases that drive businesses out of the state, we have to be innovative, imaginative and creative," Senator Bruno said. "The Senate has outlined proposals for civil justice reform, privatization and mandate relief and we support the Governor�s plan for tobacco securitization. However, as we look at these revenues to close the gap, we should be doing all we can to pursue recurring revenues, such as collecting existing taxes, including sales taxes on Internet sales.
"The vast majority of states are moving towards uniformity in their laws so sales taxes can be collected on Internet and other types of remote purchases," Senator Bruno said. "This bill would make it clear that New York intends to participate in that effort."
"In these tough economic times, we need creative solutions to generate additional revenues," Senator Nicholas A. Spano (R-C, Westchester), sponsor of the bill, said. "This legislation represents a huge first step for New York to capture uncollected sales tax on the Internet."
"As Immediate Past President of the National Conference of State Legislatures I am pleased to have participated in developing this program to assist states in the collection of Internet sales and use taxes," said Senator Stephen M. Saland (R-C, Poughkeepsie). "I am proud to join today with Senator Bruno and Senator Spano to recommend that New York State participate in this compact. Main Street merchants are placed at a competitive disadvantage by the preferential treatment given to Internet vendors. Unlike our local merchants, Internet vendors generally do not have to collect and remit sales use taxes, even though the United States Supreme Court has held that it is due. This proposal is not only a means to level the playing field, but will enable the state to recover billions of dollars it will otherwise lose to e-commerce activity."
In 2002, Internet sales totaled about $80 billion, double the total from 2001. By not collecting sales taxes and remitting the taxes to the appropriate states, Internet retailers have a competitive advantage over �main street� merchants. The nationwide effort to address this issue would level the playing field for store merchants and e-commerce businesses. Several online retailers, including Wal-Mart, Target and Toys �R� Us recently agreed to start voluntarily collecting sales taxes on Internet sales.
The Supreme Court ruled in 1992 that companies that do not have a physical presence in a particular state, are not required to collect sales tax for that particular state, mostly relating to Internet and catalog sales. The Court ruled that remittance of sales tax to various jurisdictions would cause an undue burden on retailers since tax levels, exemptions, etc. vary so widely between states. Instead, the consumer has the legal responsibility to pay the use tax directly to the state, but this provision is difficult to enforce. This Court decision also cited that Congress has the authority to legislate in this area.
The Streamlined Sales Tax Project (SSTP) is an effort by states along with the National Conference of State Legislatures to convince Congress that they can simplify and modernize the current sales tax system without causing an undue burden on retailers.
On November 12, 2002, 31 states (including the District of Columbia) approved the framework and language of the Streamlined Sales and Use Tax Agreement. The agreement is a cooperative effort by state and local governments to simplify and make uniform, the sales and use tax laws among the 7,500 separate state and local tax jurisdictions in the United States.
Once the Senate�s legislation (S.2850) is enacted, New York can become involved in further refinements to the full streamlined sales and use tax agreement, subsequent legislative action will then be required to modify New York�s sales and use tax laws to comply with the agreement. No states have adopted the full agreement as of today, however, once 10 states comprising at least 20 percent of the total population of the U.S. modify their tax code in compliance with the provisions of the agreement, it will become binding and take effect on a voluntary basis among those states.
The bill was sent to the Assembly.
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