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The problem for the Old Book Barn and other traditional Main Street businesses is that Internet-based sellers with whom they compete are not subject to sales taxes. 1/17/2002 12:39:00 PM
By Richard Goldstein, Decatur Herald & Review, Springfield Bureau
SPRINGFIELD–The Old Book Barn in Forsyth sells its 300,000-book stock the old fashioned way. Customers walk in, pay, then walk out.
"We have an informational Web site," store owner Cheryl Haubner said Tuesday. "Basically, all of us here are pretty computer illiterate."
In addition to the cost of the books, shoppers pony up 6.25 percent for sales tax.
The problem for the Old Book Barn and other traditional Main Street businesses is that Internet-based sellers with whom they compete are not subject to sales taxes, said David Vite, president and chief executive of the Illinois Retail Merchants Association.
"They've been able to build their businesses on the backs of brick-and-mortar retailers who are paying for fire protection, police protection, schools," Vite said.
Avoiding sales taxes meas a 6.25 percent price advantage compared to most products off the shelf in most of Illinois, Vite said. The advantage is even greater in cities with higher sales taxes. Those buying goods on the Internet often have to pay shipping costs, however.
Under current law, most out-of-state sellers, whether by mail order or on the World Wide Web, are not required to collect sales taxes, said Mike Klemens, a spokesman for the Illinois Department of Revenue.
Individuals are subject to the tax each year by filing a special form with the state, but Klemens said few people comply. He said businesses are more apt to pay the tax.
State and local governments also lose money, say economists who have studied the issue. William F. Fox, an economics professor at the University of Tennessee at Knoxville, co-authored an analysis released in September. He said Illinois lost $533 million in sales tax money in the last state fiscal year.
"It's as if you didn't have one year of revenue growth," Fox said.
We projected that, if the law remains the same, in fiscal year 2000 Illinois would lose $1.8 billion in tax money.
Klemens disagrees that so much is being lost to sales on the Internet. Based on a report by the U.S. General Accounting Office about total Internet sales, he said state loses are below $70 million.
Several calls seeking comment were not returned by NetChoice, a Washington, D.C.-based coalition of Internet companies, or by Amazon.com Inc., which is a leading Internet retailer based in Seattle.
Companies that sell on the Internet and by mail order say they should not be forced to collect sales taxes because it is too difficult to cope with the systems of each of the states, and the U.S. Supreme Court has agreed with them.
To answer these objections, states are trying to simplify and standardize their sales tax systems. State Sen. Steven J. Rauschenberger, R-Elgin, backed a law, which provides for Illinois' participation in the Streamlined Sales Tax Project. "It requires states to update and modernize their tax systems," he said.
The National Governors Association, which administers the streamlining project, reports that Illinois is among 29 states and the District of Columbia that have approved or introduced legislation to be members of the group. A proposal for a simplified system is expected by the end of the year.
Rauschenberger said the current system is bad public policy." You shouldn't have a tax code or a situation where you essentially reward tax avoidance by saying if a particular transaction takes place on an electronic medium that it's not subject to your same rules."
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