In an Associated Press article about West Virginia’s budget, state delegate John Doyle noted that if online retailers collected existing sales tax, instead of shifting that burden to their customers, the revenue generated could allow for tax cuts elsewhere:
Doyle, a past president of the agreement’s governing board, said increased revenue is one of several reasons to pursue Internet sales tax revenues — but not the most important.
“Even if we didn’t need the revenue, we should still do this and then reduce the tax burden elsewhere,” Doyle said Friday.
He gave the example of the state tax on groceries, which generates about as much revenue as online sales tax would if retailers collected it:
States can expect to lose $11.4 billion in 2012 from Internet sales that will go untaxed, state Deputy Revenue Secretary Mark Muchow said Friday, citing a recent Tennessee study. West Virginia will miss $50.6 million in such potential revenues, the study estimated. . . .
Muchow estimated that the 2 percent tax [on groceries] will yield between $52 million and $55 million annually.
“It’s almost a fair trade,” Doyle said.
It’s an argument for online sales tax that hasn’t gotten much attention, but we have heard that legislators in other states are considering cutting taxes elsewhere if they are able to require online retailers to collect sales tax. The West Virginia tax on groceries is a good example: Most states do not tax groceries at all, but even though many West Virginia lawmakers advocate eliminating the tax entirely, the $52-56 million it brings in is necessary for vital state services. If an existing tax that mostly goes uncollected were to be collected and provide enough revenue, the groceries tax could be eliminated.
The entire article is well worth reading for both background on the issue and Doyle’s take on it.
Update: There seems to be some confusion over a quote from Doyle at the end:
“I believe that the Internet should be a tax-free zone,” Doyle said. “We’re better off not taxing it, but it’s still wrong for the federal government to tell us that particularly because they’re allowing states like Texas and New Hampshire to tax it.”
This seems to be a contradiction at first—up to this point in the article, Doyle has supported online sales tax. However, the paragraph preceding the quote supplies the necessary context to understand Doyle’s true meaning:
He added that while states should also be allowed to decide whether to tax Internet access, he favors an across-the-board federal ban. The problem there is an existing federal moratorium allows a handful of states to maintain their access taxes, he said.
In other words, Doyle believes that internet access should not be taxed—and that existing sales taxes on online sales should be collected by retailers. Far from being contradictory, these positions seem quite sensible to us.