As a research firm warns of a pending economic recession in Decatur, Illinois, a local lawmaker is calling on the federal government to require businesses across the nation to collect and pay state sales taxes on purchases made from states in which the buyers are not physically located.
In January, Decatur city councilman Patrick McDaniel told reporters at WAND-TV he supports passage of the Marketplace Fairness Act, a federal bill forcing e-commerce businesses to collect and remit states’ sales taxes, even if those businesses do not have physical headquarters in those states.
Under current law, residents are supposed to pay those taxes on their own, which few bother to do.
In February, the Illinois Policy Institute published a report, commissioned by the Illinois Commission on Government Forecasting and Accountability, stating Decatur and three other Illinois cities are “at risk of coming undone” and more cities’ economies are already shrinking.
Ignoring Tax Obligations
Andrew Moylan, executive director and senior fellow at the R Street Institute, says consumers and state governments often ignore online sales taxes.
“Technically, under current law, when an individual makes a purchase from a retailer online, they’re supposed to pay a use tax on that item,” Moylan said. “In practice, few people, if any, will do that, because people are simply unaware of their obligations. Most states do not go through the effort of enforcing it on a transaction-by-transaction basis. The last thing they want to do is go door-to-door bugging people about every purchase they make on Amazon or Ebay.”
Delegating an Unpleasant Task
Moylan says supporters of interstate taxation schemes want to tax other states’ taxpayers, forcing businesses to do the government’s job of revenue collection.
“Instead of trying to enforce with some more vigor their existing use tax laws, they’re seeking new, unprecedented power to tax outside their borders, to force online businesses to collect their sales tax for them, to relieve them of the obligation to go to their own citizens and get the money,” Moylan said.
Cash Grab on Consumers
Michael Lucci, vice president of policy at the Illinois Policy Institute, says Illinois lawmakers are always hungry for more tax revenue, regardless of how they obtain it.
“The legislature in Illinois doesn’t want to do any revenue-neutral tax changes,” Lucci said. “They want to do tax changes that will bring in more new tax revenue.”
Lucci says states make out the best when they tax consumption of goods and services equally and fairly.
“In an ideal situation, where you just want to tax things in a way that causes the least economic harm, you want to tax as broad of a base as possible, taxing all consumption,” Lucci said. “Then, you want to tax that at a very low rate. In Illinois, we tax goods but not services. If you just apply the sales tax across the board, so you’re not discriminating between any sort of consumption, then you would have a much lower rate—a dramatically lower rate—on a much wider base, and that’s generally good tax policy.”