We’re about to learn how Wyoming consumers react when they must pay a sales tax they should already be turning over to state government but have been allowed to keep.
How do you think they will handle it when by law online retailers have to collect state sales and use taxes? Will people grumble because they consider it a “new tax” or will they realize that in a cash-strapped state like Wyoming, government needs all of the money it can collect, by any means necessary?
For my money — at least the amount I don’t have to fork over in taxes to the state — I think there will be a lot of wailing and gnashing of teeth but after the initial shock it will be generally accepted as part of doing business over the Internet.
That isn’t exactly how the idea has gone over on the federal level, though, and with many consumers struggling to keep every penny as much as the state is, the result could be a backlash at the polls against politicians who vote in favor of a bill that requires out-of-state Internet companies to collect state sales tax and then send it back to Wyoming.
House Bill 19, sponsored by the Joint Revenue Interim Committee, has so far flown under most consumers’ radar. That will end this week when the entire Wyoming House considers the bill, which the House Revenue Committee unsurprisingly passed unanimously last Friday.
Wyoming consumers are now required to pay state sales tax on Internet purchases but the law isn’t enforced. How many times have you said to yourself, “I just bought an expensive ring from a company on the Internet and now I should go down to the State Revenue Department and ask for a form so I can voluntarily pay my debt?”
“Never” is the answer for almost everybody. U.S. Sen. Mike Enzi, sponsor of the federal Marketplace Fairness Act, jokes, “I think there are three people in Wyoming who send [the sales tax] in every year. It’s hard for people to keep track of. You need a collection method.”
Enzi saw his bill pass the Senate 75-24 but it’s been hung up in the House. So businesses throughout the country aren’t required to collect sales and use taxes for states on Internet or catalog purchases. The Wyoming senator has taken some heat nationally from consumers for his alleged “pro-tax” views, but it hasn’t hurt him in his own state, where he’s easily won re-election.
Some online retailers, including Amazon, the nation’s largest, already collect sales taxes for states. Amazon, which has agreements with 34 states, will begin collecting sales taxes for Wyoming beginning in March.
The gigantic company’s move was praised by Gov. Matt Mead, who noted it comes at a time when Wyoming faces a huge budget crisis. “The additional tax collections will not come close to solving the issues the state faces, but will obviously help,” Mead said. “Wyoming businesses are at a disadvantage when Internet businesses fail to collect tax. This is an important step in the right direction.”
The governor encouraged state lawmakers to pass HB 19, which would require other large online companies that do not have a physical presence in Wyoming to collect and remit the funds to the state. It would cover Internet vendors who sell at least $100,000 worth of their product in the state or record at least 200 sales in Wyoming. In addition, the bill would require the state to take court action to enforce the sales tax collection if that is needed.
South Dakota recently passed a law requiring the collection of state sales taxes on Internet sales, and the Wyoming Department of Revenue believes that case could provide a test of whether states can actually enforce collection of the taxes by online vendors.
Under case law, retailers currently don’t have to collect states’ sales taxes because the U.S. Supreme Court ruled in its 1992 Quill vs. North Dakota decision that online sellers have a choice to collect the sales tax, which puts the onus on customers to pay what is called a use tax.
But as several of the dozen or so HB 19 supporters who testified Friday to the House Revenue Committee said, the high court’s decision was made when the Internet was in its infancy. When a test case eventually comes before the Supreme Court that reflects modern online transactions, supporters contend, the court will quickly overturn Quill.
State revenue officials, state and national retail business associations and local Wyoming small businesses all told the House panel that HB 19 would level the playing field for brick-and-mortar stores to compete with online companies that have an advantage because their customers don’t have to pay state sales taxes. Several testified that the amount of the savings from unpaid sales taxes is a major factor in whether a shopper goes to a local retail store or peruses web pages looking for the best deal.
Chris Brown, representing the Wyoming Retail Association and the Wyoming Chamber of Commerce, said out-of-state online retailers get to play by a different set of rules than Wyoming’s main street retailers “that are charitably giving in their communities, and the ones that are collecting taxes that pay for critical infrastructure and services.”
Shelley Simonton, director of the Wyoming Association of Municipalities, said her group strongly supports the bill because members are utterly dependent on sales taxes that go back to communities to pay for infrastructure.
“Every exemption costs us a pothole refill, a water tank issue,” she said. “There are many communities now that aren’t plowing the streets. They just can’t afford it.”
Patrick Collins, owner of The Bicycle Shoppe in Cheyenne, said he and other retailers have to offer large discounts on products to compete with online vendors. “I just want to see a level playing field,” he said.
Rob Monroe, who owns a Casper florist shop, said he ships flowers out of state and competes with some big players nationwide “who can ship things a lot cheaper than I can. That 5 percent we’re collecting on sales tax is the difference between profit and loss in my industry.”
But Brett Glass, a Laramie Internet service provider who was the lone HB 19 opponent at the committee meeting, pointed out that under current federal law the state bill would be illegal. He also claimed that small businesses in Wyoming would be hurt by the proposed law.
Glass said the committee’s HB 19 hearing wasn’t well publicized and predicted more opponents will fight the legislation in the House and, if it clears that chamber, in the Senate.
“Unfortunately the public was blindsided by this,” Glass said. “Lobbyists knew this bill was coming.
“Members of the public, especially the little guys who had their heads down actually working at their small businesses, didn’t know,” he said. “The law of the land is that this is illegal. We will undoubtedly be embroiled in lawsuits. Amazon favors this because they want to establish local distribution points, they want to have local affiliates, they even want to have local server farms and therefore would have a presence in the state so [their customers] would have to pay the tax anyway.
“A lot of online vendors are fighting this really hard,” Glass added. “And it certainly benefits the big-box stores who are the lobbyists behind this.”
The chances for HB 19’s success have increased tremendously because of the budget crisis caused by lower tax revenues for state government due to the downturn in the energy industry. The need for a quick influx of any revenue no matter what size will likely be the deciding factor for state lawmakers. The level playing field argument is also one that should register with legislators.
The timing of the bill also increases the chance that if the Supreme Court accepts a test case that will determine this issue for the entire country, it may very well come from Wyoming.