Cyber Monday highlights need for internet sales tax

After the travel, after the turkey and stuffing, and after the Black Friday (or is it Thursday?) sales, comes Cyber Monday. In the days before widespread home internet access, this was the day when shoppers returned to work after Thanksgiving and began their holiday shopping online using their employer’s internet connection. Nowadays, it is a great opportunity for retailers to generate nearly $1.2 billion in sales nationwide.

However, from a state perspective Cyber Monday is a lost opportunity to collect funds necessary to provide vital services. When consumers purchase goods from brick and mortar stores in Maryland the retailers collect the sales tax and remit it to the state. Yet when a Maryland resident makes an online purchase, the resident is responsible for remitting the tax to the state, which few do. Remitting the tax on these purchases falls to the consumer because online retailers without a physical presence in Maryland are not required to collect the tax. According to some estimates, this cost Maryland upwards of $164 million in lost tax revenues.

While federal action would be required to allow Maryland to collect all $164 million, in a June 2011 report Neil Bergsman highlighted two things Maryland can do to increase the tax collection rate for online purchases:

• Change the law to require online retailers with Maryland affiliates to collect state sales tax. This should apply whether the affiliate is an individual or a subsidiary company.
• Add a line to its state income tax form to help consumers remit their use tax once a year, as the vast majority of states have done

In the upcoming legislative session, Governor O’Malley and the General Assembly will have to figure out how to plug a roughly $1 billion shortfall in the FY 2012 budget. Given the significant cuts made to services over the past several budgets, and the loss of federal stimulus dollars, MBTPI encourages a balanced approach to closing the budget gap that includes revenue enhancements such as collecting online sales taxes.