Editor’s Note: Avoiding Taxes in Cyberspace

June, 2012

The world can be divided into two kinds of people: those who like to shop and those who have to be forced into it by a personal crisis, like hungry children, a broken stove or shoes with soles worn through.

I fall into the latter group, partly because I like doing so many other things instead of shopping, but also because I’m cheap. In this case, I am using the seventh definition of “cheap” in Webster’s dictionary: “Parent whose child is attending a private, mainland college.”

When I do go shopping, I prefer patronizing stores in Hawaii, but sometimes my odd buying needs (say for German-designed board games) push me onto the Internet. The problem is that, each time I shop online, my guilt is doubled. Not only do I spend my money outside of Hawaii, but I pay no excise tax to our state government, which is the burden put on all our local stores, and, by extension, on their customers.

Even a shopophobe knows that’s patently unfair. You may argue that an online retailer should not have to pay taxes to a distant state because the retailer gets no benefit from the state’s services. Good point, but the company is depending on customers from other states, and those customers make use of their state’s services. Therefore, the transaction between the two of them should be taxed as if the company were operating in the customer’s state.

Amazon was once the biggest resister to paying state sales taxes, but now supports federal legislation that would compel all large online retailers to charge the appropriate state sales tax and reimburse the state, when a state’s tax laws make it reasonably easy to do so. Interestingly, eBay opposes such legislation, insisting it would harm the many independent retailers who sell enough products on eBay to qualify for the law.

Hawaii’s Legislature came close to passing a law this year that would facilitate the online collection of Hawaii taxes, but the House and Senate could not compromise in conference committee on the bill. Because Hawaii has an excise tax, not a standard sales tax, our situation is more complicated than in other states.

It’s not clear how much Hawaii residents spend each year on online sales. What’s clear is that number is growing, so it’s important to capture the tax revenue from those sales.

No one likes to pay taxes, but this is an issue of equality before the law and fairness for bricks-and-mortar stores that do pay their taxes. Our legislators need to find a solution so the state can start collecting taxes on online sales as other states are already doing.

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Author:

Steve Petranik