SALE AND TAXATION OF GOODS OVER THE INTERNET

Are you breaking the law when purchasing online products?

Many Idaho customers don’t know that they are supposed to pay a use tax on goods they purchase online, through catalogs or on the phone when those items don’t include sales tax.

“I would say that’s probably the vast majority of it,” said Rep. Bill Killen, D-Boise.

The lack of reporting by Idaho taxpayers on such items is costing the state between $30 million and $80 million, according the Idaho State Tax Commission.

Online companies that have a physical presence in Idaho are required to charge the sales tax and remit those funds to the tax commission. But companies that don’t have a physical presence in the state often don’t collect the revenue. And taxpayers either don’t know or ignore laws that requite them to report those purchases on their income taxes.

Another example of under-reported taxes: Consumers who purchase items in Oregon, where there is no sales tax, and bring them back to Idaho are also supposed to pay the 6 percent use tax.

“What they’re ... doing is not reporting that to the tax commission and paying the tax,” said Dan John, the commission’s tax policy manager.

John said the state collected between $300,000 and $400,000 last year from citizens who self-reported Internet, catalog and phone purchases — leaving a huge uncollected tax gap.

As more and more business is conducted through e-commerce, some lawmakers have concerns about fairness for “brick-and-mortar” business as well as worries about the shrinking tax base.

That’s why some lawmakers want Idaho to join a multi-state coalition that is studying how to collect sales tax on Internet purchases.

“What this bill is intended to do is protect that tax base and protect the brick-and-mortar businesses that are competing with those online retailers,” Killen said.

The Idaho Senate voted unanimously to allow an Idaho representative to sit in on meetings and report back to a four-person committee charged with updating the Legislature on any law changes that might be needed for Idaho to conform.

“We’re trying to find out what’s involved and what the cost would be and the statutes we’d need to change,” said Rep. Leon Smith, R-Twin Falls.

But the House has been more skeptical, defeating similar measures in recent years. The House Revenue and Taxation Committee voted 10-8 in a tense vote to merely print the bill put forth by Killen and Smith. The committee will hold a public hearing on the bill Tuesday.

Opponents say it is up the federal government to act first, in passing guidelines for collecting Internet sales tax first.

Rep. Dennis Lake, R-Blackfoot, has long supported the measure. He said online retailers have an unfair advantage that is harming Idaho businesses.

“People are shopping online because of a price advantage. Some is because there is one. Some is because they don’t have to pay sales tax,” Lake said.