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S.C. Statehouse Report
Jan. 11, 2004
VIEW: http://www.statehousereport.com/columns04.0111.internet.htm
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COMMENTARY
State
loses millions in unpaid Internet taxes
By
Andy Brack
SC Statehouse Report
JAN. 10, 2004 - - Economist Al Parish this month asked members
of a Charleston Rotary Club to raise their hands if they paid state
taxes on holiday purchases made through the Internet.
 Of
the 140 people in the room, none raised a hand, even though more
than 80 percent indicated they bought gifts online.
Parish wasn't surprised. He got the same reaction last year when
he asked the question to a group of tax auditors - - the people
who are supposed to stick to the letter of tax laws.
In South Carolina, like most other states, you're required to pay
taxes on items purchased online or through mail-order catalogs.
But online merchants aren't required to add taxes to the total like
merchants do in real stores in South Carolina. So that means you're
supposed to write a check to the state Department of Revenue for
5 percent of the online purchase price. Guess what? Few do.
State Department of Revenue spokesman Danny Brazell said the state
lost an estimated $153 million in 2003 revenue from unreported and
uncollected use taxes on Internet sales. Fortunately, the state
does collect more than $180 million a year in taxes on sales via
the Internet, catalogs and televised ads. That's because it has
agreements with 11 other states and an in-state public education
program that is having some success, Brazell said. Also, many big
out-of-state vendors voluntarily pay the tax. But overall, payments
from individuals who buy stuff on the Internet sales remain a problem.
"It's the state's must underreported tax," Brazell said,
noting there is a line on the state tax return that allows people
to itemize tax payments.
If nothing changes, the state is expected to lose as much as $525
million in unreported Internet taxes by 2006. That's because Internet
sales should grow 40 percent as they have in the last couple of
years, predicted Parish, a professor at Charleston Southern University's
School of Business.
"You can legally require consumers to pay the tax, but that's
essentially an unenforceable law," he observed.
It's unenforceable because it relies on individuals to pay the
tax, not online merchants to collect it. That gives a partial competitive
advantage to Internet vendors.
But Parish notes the advantage is selective. Online sales often
include shipping and handling charges that generally exceed sales
taxes on many items. In other words, if an item costs the same in
a store or online, it's generally less expensive to buy it in the
South Carolina store. So the store would have the advantage - -
unless shipping and handling charges were waived, as many online
merchants did during the holidays.
The Web also has an advantage for big-ticket items, like computers.
A $1,000 computer certainly costs less than $50 (the amount of the
tax) to ship to the state directly into someone's home.
As state lawmakers convene this week in Columbia, they'll be faced
with multiple alternatives to generate more revenues for the cash-strapped
state or to reconfigure the way the state collects tax money. When
the General Assembly for 2004 calls it quits in June, it more than
likely will be remembered as the Session of Tax Reform.
If lawmakers could figure out a way to get their arms around lost
revenues from Internet sales, they'd accomplish a legislative miracle.
If they could really collect the lost $153 million, they'd have
enough money to pay for increased health care costs for the Medicare
program for the elderly - - without raising cigarette taxes. Or,
they'd have enough to pay down the deficit remaining from previous
years - - without raising taxes. Or, they'd have twice as money
as they need to fund state employee pay raises or a third as much
as they need to meet school upgrades required by federally-imposed
standards.
But there's not likely to be a miracle with Internet taxes. More
than likely, the state will keep losing them to the same place socks
go when they're put in a dryer. And in a sense, that's a shame because
it puts South Carolina businesses at a competitive disadvantage
to online merchants.
McLEMORE'S WORLD
NASA's sweet success
This week's cartoon by our Bill McLemore:
FEEDBACK
1/11:Some
of South Carolina's best policy/politics books
We asked a series of professors and political observers to send
us some of their favorite fiction and nonfiction books on South
Carolina politics and policy. While we didn't get any fiction nominations,
here's a list of top books from several sources (in no particular
order):
1. "Ol' Strom: An Unauthorized Biography
of Strom Thurmond," by Jack Bass and Marilyn W. Thompson,
Longstreet Press, 1998.
2. "Strom Thurmond and the Politics of Southern
Change," by Nadine Cohodas, Simon & Schuster, 1993.
3. "The Case Against Hunger: The Need for
a National Policy," by Ernest F. Hollings, Cowles Book Co.,
1970.
4. "Against the Tide: One Woman's Political
Struggle" by Harriet Keyserling, University of South Carolina
Press, 1998. Foreward by Richard W. Riley.
5. "Banana Republic: A Year in the Heart
of Myrtle Beach," by Will Moredock, Frontline Press, 2003.
6. "Porgy Comes Home: South Carolina After
300 Years," by Jack Bass, Sandlapper, 1970.
7. "South Carolina: A History," by
Walter Edgar, USC Press, 1998.
8. "South Carolina Government: An Introduction,"
by Charlie Tyer, ed., USC Institute for Public Affairs, 2002.
9. "South Carolina Politics and Government
(Politics and Governments of the American States)," by Cole
Blease Graham and William V. Moore, Univ. of Nebraska Press, 1994.
10. "Government in the Palmetto State: Toward
the 21st Century," Luther F. Carter and David Mann, eds.,
University of South Carolina, 1993.
11. "The Orangeburg Massacre," by Jack
Bass and Jack Nelson, Mercer University Press, 1992.
12. "A South Carolina Chronology, 1497-1992,
2nd Ed.," by George C. Rogers Jr. & C. James Taylor,
University of South Carolina Press, Columbia, SC, 1994.
13. "The Primary State - A History of the
Democratic Party in South Carolina, 1876-1962," by Frank
E. Jordan, Jr., Columbia, SC, 1967
14. "Red Hills and Cotton," by Ben
Robertson, USC Press (reprint), 1991.
15. "Profits and Politics in Paradise: The
Development of Hilton Head Island," by Michael N. Danielson,
University of South Carolina Press, 1995.
Many thanks to those of you who supplied titles. If you have a
book you'd like other readers to know about, send an email to: feedback@statehousereport.com
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