HARRISBURG – The state raked in $130 million in Internet sales tax through September after having stepped up its efforts to collect from online retailers. As much as $600 million is going uncollected – a fact that galls some state leaders facing a budget crisis, especially since any hope of getting that money appears to be dying inside the Beltway.
Pennsylvania and other states can collect online sales tax from retailers with a physical presence within their borders. Incoming Gov. Tom Wolf supports a federal effort to broaden that to all Internet retailers, according to spokesman Jeff Sheridan.
"In the meantime, he will work to ensure that Pennsylvania is collecting sales taxes form online retailers as allowed by state law and the U.S. Constitution," Sheridan said in an e-mail.
He's not the only one in Harrisburg rooting for federal action. The state House passed a resolution in December 2013 urging Congress to broaden rules on taxing online sales. The measure was opposed by only 10 lawmakers, mostly conservative Republicans, including Reps. Brad Roae and Fred Keller.
But Congressional action doesn't appear to be in the offing. While the Senate has passed a bill to expand online sales tax collections, House Speaker John Boehner has vowed not to move it this year, and it remains parked in the Judiciary Committee.
Congressman Tom Marino, R-Lycoming County, a member of that committee, has supported "leveling the playing field" of online sales tax collections. But in a statement Wednesday he echoed Boehner's sentiment that the bill is not ready.
"Everyone, from the smallest music store to the big box retailers, who have a stake in this extremely complicated issue should expect a well-thought-out legislative solution that is fair and enhances economic growth without favoritism towards any one interest," Marino said.
Pennsylvania and most other states have struggled to determine how much sales tax can be culled from online businesses.
Three years ago the state determined that a company doesn't need actual stores to have a "physical presence" in Pennsylvania, said Department of Revenue spokeswoman Maia Warren. Warehouses, distribution centers or sales forces count, too, she said.
As a result, Amazon.com began collecting sales taxes from Pennsylvania consumers.
The Department of Revenue estimated that the state missed out on $256 million in online sales taxes in 2012. But, the National Conference of State Legislatures, citing a University of Tennessee study, found that Pennsylvania could be missing out on almost $600 million in sales taxes from transactions involving retailers outside the state.
That kind of money is attractive to a governor-elect who Wednesday said he wanted the public to know that he is "inheriting" a $2 billion deficit from outgoing Gov. Tom Corbett.
Speaking to reporters, Wolf said it would be premature to offer specifics about how he hopes to close the deficit. He noted that he campaigned on taxing gas drillers to shore up school funding – not to plug budget shortfalls.
Montgomery County Commissioner Josh Shapiro, who is vice-chairman of Wolf's budget stabilization task force, said the team is interested in finding innovative ways to solve the budget mess.
Retail groups nationally have lobbied Congress to expand the online sales tax by taking up the Marketplace Fairness Act before the end of the year.
Retailers are put at a competitive disadvantage, some business groups argue, when online shoppers in their state buy merchandise from out-of-state retailers without paying a tax.
Current law discourages successful online businesses from establishing more formal physical presences in Pennsylvania because it would mean they would have to start collecting the tax.
Legislation to expand the tax passed the U.S. Senate last April with split support from Pennsylvania's two senators. Democratic Sen. Bob Casey voted in favor, while Republican Sen. Pat Toomey opposed creating a new tax.
Steve Kelly, a Toomey spokesman, said he "understands the concerns that many retailers in my state have raised about online sales and has also heard the concerns of online retailers who would be subject to the thousands of tax jurisdictions across the country."
That's a concern raised by William Knecht Jr., president of Wendell August in Springfield Township.
America's oldest and largest forge, producing hand-wrought metalware, sells its products in all 50 states. But it only collects sales tax from customers in two – Pennsylvania and Ohio, where it also has a store.
If Congress requires retailers to collect sales taxes, Knecht said he hopes it picks one rate. Otherwise tracking taxes levied across the country will be a nightmare.
"Negotiating the labyrinth of Ohio is bad enough," he said, noting that each of Ohio's 88 counties can set its own sales tax.
The proposed bill in Congress would require states to provide software to retailers to calculate tax, according to an analysis by the Tax Foundation in Washington. Critics say it would not clear up confusing disparities over what items are subject to sales tax.