A brewing national debate about whether and how governments should tax shopping on the Internet has Oak Brook Village President Karen Bushy keeping a wary eye on her retail-rich village’s financial future.
As untaxed Internet sales grow by leaps and bounds, those who benefit from the receipts of old-fashioned bricks-and-mortar retail worry that soon there will not be enough sales tax revenue to pay firefighters, maintain parks and pave streets in towns such as Oak Brook.
“What we’re really looking at is a total change . . . in the way that local, county and state government is funded,” Bushy said.
Bushy is not alone in fearing that, in the long run, the Internet might take a sizable portion of the retail market away from conventional stores. If the federal government does not regulate Internet retail to collect sales taxes and distribute it fairly, local and state governments that depend heavily on sales tax revenue could be in financial trouble, advocates for tax regulation say.
Because of the millions of dollars generated by Oakbrook Center and other shopping centers in the village of about 9,000 residents, the village does not collect property taxes to run the government, Bushy said. And because of existing tax caps, Oak Brook would be hard-pressed to levy property taxes to compensate for eroding sales taxes, she added.
Bushy’s concerns are the most prickly part of a growing debate over how to tax Internet transactions. A congressional commission appointed to explore the issue is expected to leave the retail sales tax issue untouched in its report due this spring, said Sarah Whitaker, director of government relations for the National Retail Federation, an industry trade organization.
The commission is expected to support abolishing an Internet access tax that the federal government collects from Internet service providers and to declare a moratorium on any global taxes, which will have to be negotiated internationally, she said. The commission is expected to leave the sales tax issue untouched, Whitaker said.
“There’s not much consensus there,” said Whitaker, whose organization supports an Internet sales tax in order to keep a level playing field of competition for all retailers.
Bad weather on the East Coast foiled Bushy’s plans to travel to Washington this week for a U.S. Conference of Mayors seminar on the Internet taxing issue, she said.
The sales tax debate likely will linger for years, Whitaker said, much in the same way that legislators have never really decided how to tax mail-order and catalog sales.
Retailers who conduct business by Internet, mail or telephone are not required to collect sales taxes from customers in states where they have no operational presence. The issue is complicated by tax laws that differ from state to state.
If Internet retailers were required to collect sales taxes, they would need to become well-versed in the tax laws of all 50 states and to develop a method of sending the taxes to local taxing districts, Whitaker said.
While sorting out the taxing issues might seem a daunting task, Bushy said that communities in Illinois have a lot riding on the issue.
“We are tremendously dependent on sales taxes,” she said, pointing out that Oak Brook sends more than $55 million a year in sales taxes to Springfield. “I don’t think the state is prepared to operate without that income.”
