As the U.S. Senate moves toward a vote on allowing states to collect sales tax on Internet sales to their residents, Idaho’s two senators have lined up strongly behind the concept – though not necessarily the details. Both GOP Sens. Jim Risch and Mike Crapo voted with the majority in the Senate’s 74-20 decision this past Monday to take up the bill, S. 743, but both voted against a Thursday motion to end debate and proceed. That passed anyway, on 63-30 vote, and the Senate is likely to take up the bill in early May after a one-week recess. The two Idaho senators said their concern in Thursday’s vote was that the Senate’s Democratic leadership didn’t plan to allow for amendments, and there are several both feel the bill needs.

“We just can’t support it in the form that it’s in,” Risch told Eye on Boise today. In particular, Risch said he’d like to see the small business exemption in the bill rise from the current $1 million in annual receipts, possibly to around $3 million; and he’d like language clarified that some fear could authorize states to tax financial transactions like the sale of a share of stock. “That really needs to be cleared up,” Risch said. “Those two things were deal-breakers for us.”

Crapo said, “It is not, as some have believed, a tax on Internet sales, which I would strongly oppose, but is instead, as I see it, a states’ rights bill. It allows states to develop their own policy with regard to sales tax on Internet sales, and has the federal government stay out of the way.”

Idaho law actually already deals with the issue, and has since long before there was an Internet. Ever since Idaho’s 1965 sales tax law, Idahoans who buy items from remote sellers – like catalog or Internet retailers – and don’t pay the state’s sales tax, are supposed to report those purchases and pay the tax each year on their state income tax returns. However, few do.

Last year, in tax year 2011, 9,555 Idaho tax returns reported “use tax” on such purchases, averaging $56 per return. But there were about 700,000 returns in all, putting compliance at a measly 1.4 percent. And that’s up from previous years; in tax year 2010, 8,900 returns reported use tax averaging $53, and in tax year 2009, there were 8,200 averaging $48. “We do have people complying, but it is a relatively low number at this point,” said Doreen Warren, administrator for the Revenue Operations Division of the Idaho State Tax Commission.

That’s the case in most states; it’s difficult to get taxpayers to self-report and pay the tax on their online purchases. That’s why a consortium of states has been working for years to come up with a mechanism to allow companies to easily calculate and remit the tax to the states where their customers made the purchase. S. 743 would authorize any state that’s a member of that Streamlined Sales and Use Tax project to require companies to collect and remit the tax.

The Idaho Legislature has been debating the issue for years, pushed in part by Idaho retailers who complain that customers come in and browse their goods, then make their purchases online to avoid the state sales tax – sending those dollars out of state. This year, the House Revenue & Taxation Committee voted 10-5 against introducing a bill designed to set the state up to collect the tax if Congress gives the OK, becoming a part of the multistate consortium. Rep. Lance Clow, R-Twin Falls, the bill’s sponsor, said the latest estimates are that Idaho citizens are spending $1.08 billion on Internet purchases a year – all of which is supposed to be subject to the state’s 6 percent tax. That would mean the state is missing out on nearly $65 million a year in taxes that legally are due and payable. Plus, he said e-commerce is growing at two to three times the rate of traditional retail sales, so the tax gap will continue to grow. His bill was backed by the Idaho Association of Counties, the Association of Idaho Cities, the Idaho Association of Commerce & Industry, the Idaho Chamber Alliance, and the Idaho Retailers Association.

Risch said, “The law in Idaho is such that everybody has to pay sales tax on everything they buy, whether they buy it in Idaho or whether they order it and it’s shipped in. This is not a tax increase.” But it’s also not “self-executing,” Risch said, meaning even if the congressional bill became law, Idaho wouldn’t have to start requiring companies to collect the tax. “The Idaho Legislature would have to say, ‘Yes, we’re going to use this collection method,’” he said.

Risch said he’s confident the bill will pass the Senate, but prospects are less certain in the House. “This is bipartisan,” he noted. The bill’s lead sponsor is Sen. Mike Enzi, R-Wyoming; its title is the “Marketplace Fairness Act.”