On Tuesday the United States Senate passed the Marketplace Fairness Act, which would expand the internet sales tax to cover the majority of online sales. It’s an important policy with state-level implications, but many don’t understand exactly what it would mean for Washington.
Here is how the current law works: states can only require retailers to collect sales taxes if the business has a physical presence in the state. This means that Dell – based in Fort Worth, Texas – can sell a computer to someone living in Washington without having our state’s sales tax added on to it. This loophole has allowed many vendors to sell products tax-free online, which puts the physical storefronts in our communities at a significant disadvantage.
So how would this internet sales tax expansion affect Washingtonians?
If you’re among the many who buy most of your products from Amazon – it won’t. The Marketplace Fairness Act would require all customers to pay the sales tax of the state they live in. Amazon has always been headquartered in Washington, so our state’s residents have already been paying sales tax for years.
Similarly, if you like to buy from small local businesses, the internet sales tax expansion wouldn’t affect you either. There is an exemption for companies with less than $1 million in annual online sales, allowing entrepreneurs to test whether the internet is the right marketplace for their product.
Expanding the online sales tax would have a significant impact on our budget, however.
As the legislature continues work on how to meet the Supreme Court’s mandate to increase K-12 education funding, the internet sales tax expansion could play a significant role. According to the Department of Revenue, it would generate an extra $184 million for the 2013-15 biennium alone – enough to reduce K-3 class sizes across the state or avoid proposed tuition increases at public institutions. By 2017-2019 it would bring in more than $745 million in additional state revenue.
The Marketplace Fairness Act still has a way to go before becoming law. It must be approved by the US House of Representatives before heading to the President’s desk. But even if it doesn’t happen during this legislative session, it could still affect our long-term prospects for fully funding our schools