Senate Democrats are pushing a bill meant to force online shoppers to pay the Hawaii’s 4 percent general excise tax, just like customers who buy the same items in brick-and-mortar stores. Taxes have always been required on all purchases — whether they’re made inside Hawaii or not — but courts have ruled that only online businesses with physical operations in a state must collect the taxes, and residents seldom report them.
Some estimates predict taxing all Internet goods could have produced as much as $166 million for Hawaii this fiscal year as the state government is facing severe budget deficits. The legislation would standardize parts of Hawaii’s tax code so that it could participate in the Streamlined Sales Tax Project, an effort to simplify tax rates nationwide. In exchange, some retailers will collect online sales taxes in those states even if the companies have no operations located there.
More than 1,100 retailers have registered with the streamlining group and are voluntarily collecting sales taxes on items shipped to the 22 participating states. Internet tax collection won’t be mandatory unless Congress passes a law requiring it.
Without these laws, online retailers have an unfair competitive advantage.
After being approved by a Senate committee this week, the bill is heading for a vote in the full Senate. But it faces a difficult road ahead with the Democrat-controlled House and Republican Gov. Linda Lingle.
Separate legislation pending in the House would take a different approach to collecting taxes from businesses located outside of Hawaii. That bill attempts to copy an effort in New York state requiring out-of-state companies to collect taxes themselves. The New York law is being challenged in court by Amazon.