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Internet sales taxes

May 8, 2013 - By Steven R. Peck

Cities and towns need sales tax revenue, and the problem isn't going away

By now most people who follow the news are aware of legislation in Congress that would require most Internet retail sellers to collect sales taxes on every purchase.

Any legislation involving taxes is certain to draw some controversy. That certainly is the case with this bill, whose primary sponsor is Wyoming U.S. Sen. Mike Enzi.

The primary focus of news coverage has been the effect the sales-tax requirement would have on retail businesses operating primarily online, particularly smaller retailers. Impact on consumer sentiment also receives plenty of ink and air time as the effects of the bill are bandied about.

But an important point is being missed in this discussion, perhaps the most important one. In the bigger picture, the entities that will be most affected if this legislation does not pass are the cities and towns of the United States.

In most states of the nation -- including Wyoming -- many municipal functions are paid for by sales tax revenues. It follows, then, that many cities and towns in Wyoming and elsewhere already have seen their sales tax revenue streams diminished by the rapid advances of Internet-based retail sales.

And when sales-tax revenue is diminished, so are services, facilities, wages and, probably, the effectiveness of local governments.

Yes, any form of tax increase is bound to meet resistance. But those who are opposing the Internet sales tax legislation so vociferously must ask themselves a few important questions. Are they prepared to live in a municipality that has a smaller, less-trained, or under-equipped police force in exchange for not having to pay sales tax on Internet purchases?

Are they prepared to accept less-frequent trash collection and other sanitation services? Will they be satisfied with less-kempt city streets, crumbling sidewalks and curbs, perhaps slower fire or ambulance response, all in the name of saving two dollars on the next purchase from Amazon.com?

The effect on Internet retailers and consumers from this bill certainly is real, but there also is a clear and demonstrated public interest in maintaining healthy sales tax revenue streams to cities and towns.

In Wyoming, there is added impact because our state has no tax on food-based groceries. Ask any mayor in any town in Wyoming how that has gone for local government, and you'll get the same answer: It hurts.

Rest assured that if those sales tax revenues continue to shrink, then there will be only two alternatives for local governments. One is that fees for municipal services such as trash collection, water service, and sewer service, will have to be increased to attempt to make up the difference in funding. The other option is for significant, unpopular cutbacks in municipal services, along with the inevitable reduction in staff, wages, and benefits that would come with the service reduction.

In fact, the more likely result of continuing drop-offs in sales tax revenues is both of the aforementioned outcomes, namely that fees will go up in areas where the city can control them and services will go down anyway.

We live in a publicly funded society to a large extent. When political pressures or consumer convenience threaten the underlying structure of that public mechanism, the results are widespread, unpredictable and highly likely to be undesirable.

Those undesirable outcomes must be evaluated alongside the desirable effects for consumers and business. This is an issue that requires big-picture thinking.

Years ago, the late Ranger publisher and Wyoming State Sen. Bob Peck was one of just a handful of public officials nationwide to begin serving in an effort called the Streamlined Sales Tax Project. Its objective was to find a fair way for local governments to survive with a meaningful level of staffing and services in light of what the project organizers were recognizing as a potentially devastating loss in sales tax revenue as long ago as 2000.

More than a decade later, that objective remains to be met. The new Senate legislation is a fair attempt. If it fails, then it needs to be adjusted and tried again. The problem won't go away. In fact, it will get worse. It remains incumbent upon us, regardless of the outcome of this particular bill, to work through both government and business to make sure that vital municipal services can continue to be funded in the way that they always have.

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