With the holiday season on its way, more and more shoppers will turn to big out-of-state internet sites to buy gifts.
The trend continues to hurt local business owners who must pay the state gross receipts tax on all transactions — and it exceeds 8 percent in some cities. The toll is especially high in rural areas where shops cannot stock the volume or selection of goods available on sites such as Amazon, eBay or Overstock, and now face an unfair tax burden as well.
Internet shopping is not a zero-sum game for New Mexico and other small states. While more employees are now working in web marketing, internet programming, distribution and sales, those jobs and the wealth from them are going to major metro areas like Seattle, Portland, Ore., San Francisco, Denver, Chicago and Miami.
Meanwhile, retail workers and business owners in places such as Las Vegas, N.M, Socorro, Taos, Deming, Portales, Clovis and Alamogordo take the losses. Internet commerce is one of the reasons unemployment rates are much higher in rural parts of New Mexico than the Rio Grande Corridor, which has a more diverse economy and is attracting some of those tech businesses.
By a 34-8 vote, lawmakers in the state Senate offered a way to level the playing field during the recent special session by including a measure to extend the state gross receipts tax to out-of-state internet sales as part of an omnibus tax bill.
Some 14 states are now collecting taxes from Amazon and other major web sellers, and more are headed in that direction as courts side with local communities trying to maintain their tax bases for vital public services such as law enforcement.
Few states need the revenue more than New Mexico, which is cutting all areas of government, including public education. And because cities and counties receive a share of the GRT, the cuts ripple down to impact city libraries, parks and police.
The original legal decision that prevented tax collections from the internet, a U.S. Supreme Court ruling known as Quill, was decided in 1992. It said that some physical presence is necessary by the person or company selling the product in order to be taxed.
But Quill is no longer the standard. Courts increasingly are saying that a physical presence might not necessarily mean a bricks-and-mortar location, which would be the case for a warehouse, sales or distribution center. Courts have also ruled that Quill does not apply to New Mexico and other states with a broad-based gross receipts tax.
Wisely, the Senate bill exempted any back collection of money and businesses with less than $100,000 in sales, because the cost of collecting in those instances exceeds the new revenue.
“The issue is settled,” reads an analysis of the Senate bill. “There is no reason to assume that Quill applies to our Gross Receipts Tax. New Mexico is fortunate in that if we want to join the 14 other states that are pushing back on Quill’s limitation, we have even more sound policy and legal reasons to do so now.”
Leveling the playing field for locally owned businesses in New Mexico is a good policy.
The Santa Fe Chamber of Commerce wisely understood that when it backed a change by the city of Santa Fe to collect lodgers and gross receipts taxes from owners who rent homes or rooms on Airbnb, the largest website for vacation rentals.
States are now losing $20 billion a year from the internet loophole on retail sales, according to The Wall Street Journal. Estimates in New Mexico are hard to come by, but one analysis puts the lost revenue at $27 million initially, with that set to double or triple in a few years.
“Online and mail-order retailers should collect sales tax at the point-of-purchase, so there will be a level playing field,” Jason Brewer, a spokesman for the Retail Industry Leaders Association, told The Wall Street Journal.
But the state House of Representatives stripped out the internet tax when it amended the tax bill, sending it back to the Senate for concurrence. Any new money that could have come into the state starting in January for education, public safety and economic development will be lost, and more businesses will close because they can no longer compete with Amazon.
For Gov. Susana Martinez, a tax is a tax. She argues that any new taxes will hurt business growth and New Mexico families.
Is collecting a tax from Amazon that is already paid by every business based in New Mexico who hires New Mexico workers really a new tax? The governor and many elected lawmakers have decided it is.
It is also another example of how the political rhetoric that has eclipsed common-sense tax policy is hurting New Mexico communities.
Contact Bruce Krasnow at email@example.com.