Pennsylvania Holds Hearing on Sales Tax Fairness

On Wednesday, May 4, the Pennsylvania Senate Finance Committee held a hearing on sales tax fairness and the effects on Pennsylvania of the lack of collection of sales tax for online sales. Committee members heard testimony from both opponents and supporters of efforts to ensure that all retailers collect sales tax. Attending the hearing as part of an Alliance for Main Street Fairness panel was ABA member bookseller Todd Dickinson of Aaron’s Books [1] in Lititz, Pennsylvania.

C. Daniel Hassell, deputy secretary for tax policy at the Pennsylvania Department of Revenue, began the testimony. He outlined the department’s initiative to educate businesses about use tax but noted, “Encouraging individuals to address and pay use tax responsibilities is more difficult, from the educational and voluntary compliance perspectives.” Existing law requires consumers in Pennsylvania to pay an annual use tax on all online purchases for which mandated sales tax has not been collected. “While we can’t offer exact numbers on how many individual taxpayers self-reported use tax last year, it’s safe to say it was a very small number.”

Robert Strauss, professor of economics and public policy at the Heinz College, Carnegie Mellon University in Pittsburgh, summarized some of the results of his recent study,“The Impact of Not Collecting Sales and Use Taxes from Internet Sales into Pennsylvania [2].” Strauss’ report estimates that the gross loss in use tax collections to the Commonwealth ranges between $254 and $410 million “at calendar year 2012 levels.”

Noting that Main Street retailers in Pennsylvania find they are increasingly facing unfair competition from Internet vendors, Strauss stated, “Greater sales at Pennsylvania bricks-and-mortar businesses would lead to modest employment gains of between 1,530 to 2,766 new jobs in 2012, which implies between $66 and $119 million in increased wages in Pennsylvania. This further implies between $5.8 to $10.4 million in additional state tax revenue in 2012, over and above the increased sales and use tax collections.”

Testifying on behalf of the Alliance for Main Street Fairness panel was Greg Rozman, owner of a retail appliance store in Steelton, Pennsylvania. “We are all positioned at a significant disadvantage because some online retailers do not collect and remit our state sales tax at the point of sale,” Rozman stated. “It seems that Pennsylvania has a de facto policy of tax-free online retail sales. This practice represents an unequal and unfair playing field with my online competition, as small businesses like the one I own are expected to collect sales tax at the point of sale. As a result, Pennsylvania businesses are put at a significant competitive disadvantage, and that puts our local business community at risk.”

Though Dickinson of Aaron’s Books did not testify, in response to a question from the committee, he stated: “Our main competition is Amazon.com. We can’t always compete with their price, though often we can. But the fact that they have an additional six-percent advantage [by not collecting sales tax], even after their discounted price, is the make-or-break for us. The longer they have that, the less opportunity we have to expand, or to even stay in business.”