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Senate OKs bill to collect sales tax on online retail, complying with U.S. Supreme Court decision

March 29, 2019

BOISE — Despite some hesitation about the creation of a new Idaho tax relief fund, the Senate agreed Thursday to pass a bill giving the state the authority to collect internet sales and use tax, which would then be funneled into the new relief fund.

It’s estimated the taxes could bring an additional $30 million to the state.

The Senate voted, 24-11, to pass the bill. It’ll head back to the House, where they must concur with the Senate amendments before it can head to the governor’s desk for signing.

The bill, HB 259aaS, sponsored by GOP Caldwell Sen. Jim Rice, chairman of the Senate Local Government and Taxation Committee, is meant to set up the process requiring internet sellers to collect and remit state sales taxes on online retail and e-commerce, much like local retailers. It would apply only to internet retailers and marketplace facilitators with $100,000 a year or more in sales.

“It will be collected by the seller, instead of our citizens having to report it on their income tax returns on their use tax,” Rice said. “This is not a new tax — it’s a tax that was always due and a change in the method in which it’s collected.”

The legislation complies with the 2018 U.S. Supreme Court’s South Dakota vs. Wayfair Inc. decision, which ruled 5-4 in favor of South Dakota, overturning the 1992 Quill v. North Dakota decision, which said sellers don’t have to collect and remit state taxes unless they have a physical presence in the state. In the decision, Justice Anthony Kennedy wrote, “The physical presence rule of Quill is unsound and incorrect.”

The bill was amended in the Senate to create a five-year sunset on money going into the tax relief fund. The sunset would allow the Legislature to examine and track the difference in tax collection revenue with the new bill. After five years, the revenue would be put back into the distribution fund, so cities and counties would have access to the funds.

“It does work that way so that in the future we do not penalize cities and counties by having a declining tax base in brick and mortar businesses as things shift more and more toward e-commerce,” Rice said.

Sen. Grant Burgoyne, D-Boise, opposed the bill, expressing concern with the amendments and arguing that it will continue giving money to the tax relief fund, even after the five-year sunset.

“There is an excellent bill in House Bill 259 struggling to get out, but it just can’t, and it’s really a shame,” Burgoyne said. “I think brick and mortar retail is going to continue its slow bleed if you will, or maybe not so slow bleed, off into e-commerce. If I think of Sears, Payless, Shopko and Mattress Firm as the existing sales and use tax that we’re collecting from brick and mortar stores, why when that migrates to e-commerce when they close, do we want to put that in the tax relief fund? ... I don’t think it’s very wise of us to chip away further at the general fund in this fashion.”

Rice said that because this year’s legislature can’t bind future legislatures, the state isn’t required to continue allowing funds to be put into the tax relief fund.

Sen. David Nelson, D-Moscow, voted against the bill, explaining there are more pressing needs in Idaho.

“I’d like to get to yes on this vote, but I’ve heard plenty other bills this session that have needs, transportation for example, we’ve chosen not to use general fund monies in certain cases, and I just can’t see not using this money for legitimate needs in this state,” Nelson said.

Minority Leader Michelle Stennett, D-Ketchum, also opposed the bill, adding it won’t help local businesses.

“I don’t see and have not been convinced how this is truly going to bring business back to our rural communities,” Stennett said. “Instead, we should be looking for long-term infrastructure needs.”