It’s Time for States to Adapt to the Cloud Economy
Washington Rep. Ross Hunter says he’s a nuts-and-bolts type of guy when it comes to tax policy. He didn’t understand why his state would have a tax policy that focuses on bricks-and-mortar stores—whose sales are flat—and not concentrate on collecting taxes from online retailers, whose sales grew 15 percent last year.
“For Washington state, this is somewhere between half (a billion) and a billion dollars in revenue a year that we are losing to (online) sales,” Hunter said. “We don’t have an income tax. … It’s a huge deal for us. Our annual budget is in the $15 billion range. Half to a billion dollars is real money.”
By 2014, Internet sales are projected to reach almost $250 billion a year, according to Forrester Research. For some of the Internet’s largest retailers, many of those sales take place without the customer paying state sales taxes. The tax is still owed and people are supposed to report it on their individual state income tax, but that seldom happens.
Hunter and Indiana Sen. Luke Kenley spoke at The Council of State Governments’ National Leadership Conference in La Quinta, Calif., May 19. They are members of the Streamlined Sales Tax Governing Board, which has developed a voluntary agreement for states to simplify and modernize sales and use taxes. Congress also is looking at three bills that would allow states to compel all retailers to collect state sales taxes. Kenley said it looks likely that one of the federal bills will pass this year.
Hunter said regardless of what the federal government does, states need to be carefully looking at their tax codes to ensure they are adapting to the rapid changes in technology and buying patterns.
“Do you want to completely lose your tax base for books, music and videos?” he asked. “Because you will. For us, it’s $100 million a year in revenue. …
“You’re going to find a lot of business software and business IT spending is moving to the cloud. You can make a decision whether you want to tax it or not, but you should make a decision and not have it made for you.”
“We can’t continue to have a tax code where the modern economy is receding from us,” Kenley said. “For taxes to work, to pay for stuff we all want to pay for, they have to be fed.”
Pete Poynter, regional director of Government Affairs for AT&T, said his company fully supports a unified and simpler tax code for all states.
“We file more tax returns in one day than most people file in a lifetime,” Poynter said. “It’s very helpful to us to simplify how you calculate how much tax you need to collect from a customer. It’s very important to us and very important to every large business.”