Delaware’s Chris Coons Doesn’t Want You to Pay Taxes…Sometimes
Last night, the Senate moved to end debate on so-called Marketplace Fairness Act, more commonly known as the Internet Sales Tax. The bill would turn small, online businesses into tax collectors for states in which they have no real connection. Despite representing a state without a sales tax, Delaware Senator Chris Coons favors the legislation.
According to the Associated Press, Coons “supports the bill in part because tax-free Internet sales are eating into sales by Delaware retailers.” The article continues:
“In our region, we’ve long benefited from significant commercial sales from residents of Maryland, of New Jersey, Pennsylvania and elsewhere, who come to Delaware to shop because we’re a tax-free state,” Coons said. “Over time, the benefit of that has eroded as folks discovered that they could buy the same things online without paying sales tax from home.”
This is earmark-style parochialism at its worst. Coons wants to end tax-free shopping online so people will bring their tax-free shopping habits back to his home state.
So insular is Coons’ focus, he is urging “residents of Maryland, of New Jersey, Pennsylvania and elsewhere” to break their respective states’ tax laws. As the same AP article explains, “In many states, shoppers are required to pay unpaid sales taxes when they file state tax returns.”
Maryland’s Form sT-118a helpfully explains:
We’re all familiar with Maryland’s sales tax, but far fewer people know about the use tax and when they must pay it. In fact, every state with a sales tax also has a use tax. The use tax is imposed on items you paid less than 6% sales tax or 9% tax on alcoholic beverages when you purchased them and did not pay the sales tax at time of purchase. You are required to pay the difference between the actual tax charged and the applicable Maryland tax rate as use tax. (emphasis added)
New Jersey’s Form ST-18 contains no fluff, but serves the same collection purpose.
The Pennsylvania Department of Revenue provides this helpful guidance:
Example: You buy a desk in Delaware and you bring it into Pennsylvania to use in your home. You owe use tax on the desk.
If Coons wanted to apply the so-called Marketplace Fairness Act in a manner that was actually fair (as opposed to parochial), he’d tell Delaware’s brick-and-mortar stores to collect sales tax from out-of-state consumers and remit those taxes back to the appropriate jurisdiction(s).
Again, the Pennsylvania Department of Revenue gives us an idea of how complicated the jurisdictional issue can be:
Example: While on vacation in [sales tax free] New Hampshire, you purchase a set of skis that are delivered to your home in Pennsylvania. You owe Pennsylvania use tax, and if the skis are delivered to or used in Allegheny or Philadelphia County, local use tax on the total purchase price of the skis, including any charge for shipping and handling. (emphasis added)
No one is suggesting such an approach, of course. But even setting aside his disjointed logic, Coons’ parochial stance is not without additional pitfalls.
In fact, the AP wrote Coons “noted that the bill would not require anyone from Delaware to pay sales taxes.” While that may be correct, the bill would certainly place a tremendous burden on Delaware’s online businesses.
As we’ve explained, small, online businesses will come to call this bill the Tax Audits from Hell Act of 2013:
But because complying with America’s 9,646 different taxing jurisdictions is no easy task, the threat of audits would become a stark reality. … In practical terms, that means online businesses will face the threat of 46* out-of-state audits. …. Even the New York Times’ Andrew Ross Sorkin who favors the bill shudders “about the prospect of an out-of-state tax audit.”
Under this bill, the Selbyville, DE-based Chrome World Motorcycle Accessories could face an audit from Connecticut Governor Dannel Malloy’s tax bureaucrat for shipping a hard-to-find motorcycle part to Woodstock, CT.
John White owns the Junk Yard Nut, an online business selling used car parts since 2002. Based in Dover, DE, Mr. White could potentially face an audit from a tax bureaucrat appointed by California Governor Jerry Brown if he sells a part to a California resident.
See, there is no free lunch, Senator Coons. Nor is there, technically speaking, tax-free shopping in Delaware for residents of Maryland, of New Jersey, Pennsylvania and elsewhere.