Ever since the advent of online shopping in the late 1990s, collecting state sales tax on Internet purchases has been a thorny issue.

Ever since the advent of online shopping in the late 1990s, collecting state sales tax on Internet purchases has been a thorny issue.


In 1998, the accounting firm Ernst & Young issued a report titled “The Sky is Not Falling: Why State and Local Revenues Were Not Significantly Impacted by the Internet in 1998,” which said states lost sales tax money on only about 13 percent of all Internet purchases. Illinois’ share of that loss, the report said, was a paltry $8.5 million, which would rise to perhaps $13 million in 1999.


By 2004, however, Internet sales had exploded from a high-tech novelty to a new and potent force in the retail market. A study that year by researchers in Tennessee put Illinois’ 2004 losses for uncollected sales on Web sales at $500 million to $800 million.


Now the Illinois Department of Revenue has come back to the issue of uncollected online sales tax with a more modest and, we think, more plausible figure of $150 million lost each year in unpaid sales tax on Internet purchases.


Faced with a budget deficit believed to be as much as $9 billion, $150 million may seem inconsequential. But now more than ever since the dawn of the World Wide Web as a shopping option, Illinois must figure out a way to collect what it is owed on online purchases.


The onus is not on Illinois and other states alone here. Without a uniform national policy on items purchased and shipped between states, retailers face the arduous tax of knowing and applying 50 different sets of state sales tax rules, depending on where their customers live. Congress could provide help to the states by simplifying this process.


Some will argue that applying sales tax to online purchases amounts to a tax increase on Illinois citizens. We find that logic specious at best. Avoiding sales tax has become an incentive to make purchases online in many cases, and that amounts to cheating by the buyer. Officially, Illinois residents are supposed to declare their untaxed online purchases and pay the 6.25 percent sales tax on form ST-44 on their income tax forms. As you might guess, very few do.


Then there is the argument that collecting tax at the time of sale will hurt online sales. Perhaps it will, but might there not be a positive effect in that for local economies? If buyers won’t get a “discount” of 6.25 percent buying online, might they not make their purchase in a store in their community? A store that employs local workers and otherwise feeds the community’s economy?


An important first step to collecting online sales tax, we believe, is making it easier on the online retailers by simplifying the state tax code.


“We have the retail occupation tax, the use tax, the service occupation tax and service use tax. There are special excise taxes that look like sales taxes, and we are one of only a handful of states that impose a motor-fuel and sales tax on gasoline,” Tom Johnson, president of the Illinois Taxpayers’ Federation, told The State Journal-Register last month.


Again, all of this may amount to only $150 million extra into Illinois coffers. But it’s money we no longer can afford to ignore.


State Journal-Register