Group’s Push for Collection of Sales Taxes by Online Retailers Could Have Fiscal Consequences for Local Governments

As reported by the Baltimore Business Journal, businesses and elected officials are trying to push online retailers into collecting and providing sales taxes to state and local governments.

Led by Del. Sheila Hixson, D-Montgomery County, the group has initiated a letter-writing campaign to U.S. Rep. Chis Van Hollen, D-Md., to press for the closing of a loophole it says allows online retailers like and to avoid collecting sales tax. Online retailers would lose their advantage over brick-and-mortar businesses that already collect the taxes at the point of sale, the group claims.

According to information provided by the  Department of Legislative Services to the Senate Budget and Taxation Committee, a University of Tennessee study estimates that Maryland will lose approximately $184 million in uncollected sales taxes in 2012 because online retailers are not required to collect and remit sales taxes.  However, the collection of these taxes could cause some problems for local governments.

Online retailers have also caught the attention of state hoteliers. Maryland county governments could be forced to drop their hotel tax policies in favor of a statewide levy if a national proposal subjecting online retailers to sales taxes is adopted.

This statement is referring to the “Streamlined Sales and Use Tax Agreement,” which current State law says Maryland will adopt if the authority to require online retailers to collect taxes on remote sales is provided by the U.S. Congress. This Agreement provides for a more simple collection of sales taxes through uniform product definitions and centralized collections, among other changes.

Under this Agreement, local taxes that are not widely imposed or whose rates vary would not be permitted.  Since most counties impose a hotel tax, the effect is unclear. However, other local sales and service taxes such as those on energy and utilities will most likely be affected.

Of course, before this occurs, Congress must act on requiring online retailers to collect and remit sales taxes to the states.  This issue has been discussed before Congress numerous times, but a bill has not come up for a vote.   However, California recently passed a law requiring to collect the state’s sales tax, which could prompt others to enact similar legislation.  While it does not seem to pose an immediate threat to local governments, this is definitely an issue worth watching.

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