Mnuchin suggests internet sales taxes could pay for infrastructure

WASHINGTON – Enabling state and local governments to collect sales tax on internet purchases could bring an infusion of revenue to help fund infrastructure, Treasury Secretary Steven Mnuchin said Wednesday.

Mnuchin revealed the Trump administration is close to announcing its policy on internet sale taxes during a Senate Appropriations Committee panel hearing on his department’s 2018 budget.

“This is an issue that we have been looking at very carefully within the administration and we expect to come out with a position shortly,’’ Mnuchin told members of the financial services and general government subcommittee.

Andrew Harrer/Bloomberg

Only five states — Alaska, Delaware, Montana, New Hampshire and Oregon — don’t collect sales taxes.

Linking this tax revenue collection issue to infrastructure needs also could bolster the Trump administration’s goal of encouraging $1 trillion in infrastructure funding over 10 years.

The administration has proposed a $200 billion federal share of that funding without any details, other than to state they will require some matching funds from state and local governments.

Advocates of enabling states and localities to collect taxes on remote sales say it would greatly reduce their estimated $26 billion in annual uncollected tax sales revenue.

Mnuchin discussed the issue when questioned about it by Democratic Sens. Joe Manchin of West Virginia and Dick Durbin of Illinois.

“We expect every small business and every establishment in our state to collect that tax for us,’’ said Manchin, a former governor of West Virginia, who added it’s an issue of fairness.

Durbin is a lead cosponsor of the bipartisan Marketplace Fairness Act that would allow states to collect sales taxes on remote sales if they adopt the multi-state Streamlined Sales and Use Tax Agreement (SSUTA) or an alternative simplification standard.

Small businesses with less than $1 million in annual sales would be exempt from the act.

President Trump earlier this week renewed the criticism he levied late last month on Amazon for allegedly avoiding sales tax on its internet sales.

“Is Fake News Washington Post being used as a lobbyist weapon against Congress to keep Politicians from looking into Amazon no-tax monopoly?’’ Trump asked in a July 24 tweet. That same day he asked in another tweet if The Washington Post was, "Lobbyist for Amazon and taxes?"

Mnuchin, however, acknowledged that Amazon does, in fact, collect sales tax on its own merchandise but doesn’t on third party sales.

“I am encouraged that Amazon is now charging tax, I believe on their own sales, but not the marketplace,’’ Mnuchin said. “Not sure I understand the consistency on that.’’

The problem, according Mnuchin, is the inability of states to enforce their sales and use taxes, which purchasers of out of state merchandise must voluntarily pay.

Durbin said that in his home state of Illinois compliance with paying the use tax “is pretty low.’’

“If you collect at point of sale, it’s dramatically different,’’ he added.

Mnuchin appeared to agree. “There is an awful lot of money that’s not being collected that is in fact due to [states and localities] under a use tax and this could be a very important means for the states to fund infrastructure which is critical,’’ he said.

Mnuchin also urged lawmakers again to increase the debt limit before embarking on their August recess.

Treasury announced a series of extraordinary measures that began March 16 with a suspension of the sale of state and local government series securities, also known as SLGS. Treasury generally sells between $5 billion and $12 billion of these securities each month, according to the Congressional Budget Office.

SLGS are issued to assist state and local governments comply with federal arbitrage laws and regulations when they have money to invest from the issuance of their tax-exempt bonds.

“Based on our best estimate we do have funding through the end of September but I do urge Congress to act before the recess,’’ Mnuchin said at the hearing.

The extraordinary measures Treasury is taking are costing taxpayers about $2.5 billion, Sen. James Lankford, R-Okla., said, citing conversations he’s had with Treasury officials.

Mnuchin said the cost of delay is “significant’’ and twofold.

One cost is that, instead of borrowing in the market at a low interest rates, Treasury is assuming the cost of deferred payments.
The second is the implied cost of putting uncertainty into the market, the Treasury secretary said.

Lankford said he favors legislation that would suspend the debt limit for two years with the expiration linked to the end of the federal fiscal year so that congressional action is tied to enacting a budget.