U.S. Sen. Tom Harkin
U.S. Sen. Tom Harkin
April 25, 2013

If a Carroll resident buys a shirt or a set of dishes or a television in a local store, there's a 7 percent sales tax. But purchase any of those same products online and the consumer escapes the sales tax.

U.S. Sen. Tom Harkin, D-Iowa, says the absence of a sales tax on online purchases disadvantages brick-and-mortar businesses that help form the backbone of the rural Iowa economy.

He's backing legislation that would empower states to require online businesses to collect sales tax on products sold to their residents. The legislation passed what Harkin called a Senate "test vote" on Wednesday, 74-23 with 27 Republicans in support.

"I've been a supporter of that for 20 years," Harkin said. "This is a fairness bill. It's just not fair that you can come into a state and sell and not pay local sales tax, whereas our Main Street businesses have to."

In a conference call this morning with The Daily Times Herald and other media, Harkin said modern computer software allows businesses to efficiently manage the Net sales-tax process. "It's not a paperwork nightmare at all," Harkin said.

The bill is opposed by certain conservative advocacy groups, like the Heritage Foundation and Americans for Tax Reform, who see it simply as a tax increase.

"They're in a distinct minority, very distinct minority," Harkin said. "I'm hopeful that we'll get this done."

A number of Republican governors support an Internet sales tax. Gov. Terry Branstad, in a letter sent to Harkin and U.S. Sen. Charles Grassley, R-Iowa, said the Internet is a "mature and dynamic marketplace" and shouldn't be treated differently than Main Street businesses.

Currently, Internet sales are subject to sales taxes in Iowa, even if they are purchased from out-of-state sellers. Businesses with Iowa presences are supposed to collect the taxes with the sales.

According to Kay Arvidson, assistant public information director for the Iowa Department of Revenue, many taxpayers are not aware Iowa has a 6 percent consumer's use tax. Consumer's use tax normally applies to items purchased outside Iowa and brought in or delivered into Iowa through such means as online purchases, mail-order catalogs and television shopping programs. The Department of Revenue has online forms at its website, www.iowa.gov/tax, to assist people in paying in what Arvidson described as a voluntary tax.

In fiscal year 2012, Iowa businesses and individuals paid $64.4 million to the state through the voluntary consumer's use tax.

The consumer's use tax applies only to the state's 6 percent sales tax. Local-option sales taxes are not covered under it so even people buying online and paying the tax would still get a 1 percent break compared with a purchase made at a store in Carroll, which has a 1 percent local-option tax like most Iowa cities.

The Wall Street Journal recently reported that Amazon.com has agreed to collect a sales tax on items sold in Nevada beginning in 2014, or earlier should proposed federal legislation of the sort Harkin supports mandate that online retailers collect sales taxes. According to Fox News.com, the National Conference of State Legislatures estimates that states lost $23 billion last year because they couldn't collect taxes on out-of-state sales.

In Iowa, the consumer's use tax was established in 1937, three years after the sales tax was enacted, to create a fair playing field for Iowa businesses, according to the Iowa Department of Revenue. The rate of the consumer's use tax is always equal to the state sales-tax rate.

The legislation before the Senate would exempt businesses with less than $1 million in annual online sales.