DES MOINES —
Gov. Terry Branstad is joining other governors in calling for the passage of federal legislation requiring online businesses to pay state sales taxes to states choosing to collect them.
Branstad asked Iowa's U.S. senators, Republican Charles Grassley and Democrat Tom Harkin, to vote for the proposal, which would provide a streamlined approach for Iowa and other states to consistently enforce sales tax laws. The plan is being considered by the Senate.
The Republican governor said that since online retailers aren't required to pay sales tax, many local businesses are at a disadvantage because they're required to collect state and local sales taxes. Iowa's state sales tax is 6 percent and many local governments have their own local option tax of an additional 1 percent.
Branstad's spokesman, Tim Albrecht, said in a statement Monday that the governor "wants equity for our brick and mortar small businesses in Iowa, and wants to do everything we can to spur economic growth."
The Des Moines Register reports that Harkin says he supports the legislation, while Grassley declined to say whether he would vote for it. In his letter, the governor said the Internet is now a "robust, mature and dynamic marketplace that does not warrant special protections."
When the issue first arose in the 1990s, Branstad said there were legitimate concerns about technological capabilities to calculate sales taxes for online retailers. But now technology exists to enforce sales tax laws without overburdening online retailers, he said
State revenue officials estimate that Iowa is missing out on about $14 million a year in additional tax revenue. The state currently collects about $13.5 million a year from online sellers and other remote retailers.
Since a 1992 U.S. Supreme Court ruling, retailers have been required to collect online sales taxes only for states in which they have stores located, said Jon Kuhl, a spokesman for the National Conference of State Legislatures in Washington.
Grassley, in a conference call with Iowa reporters, said the difficult economy and anti-tax sentiment may make it more difficult to get the bill passed.
"I don't think I can argue with it from a substantive point of view. The political problem is that in a time of recession ... there are a lot of anti-tax organizations in Washington that are fighting it," Grassley said.
Some companies including a coalition of online sellers Overstock.com, eBay and others contend that compliance costs of taxing all remote purchases would outweigh the benefits, especially for small firms. They say states already can recoup some lost revenue without a federal mandate on all interstate retailers.
The proposed federal legislation includes an exemption for businesses that do not exceed $500,000 in remote sales.
Harkin said he has long supported allowing states to collect sales tax for online purchases.
"It would be just a quick keystroke, and they could remit those taxes back to the states," he said. "I think it is unequal that you can tax those who are selling in your state, but not those who are selling into your state online."