Editorial: Idaho misses millions in online sales tax

The Cabela's tax exemption has the sound of controversy: A big new sporting goods retailer gets the state's OK to avoid charging sales taxes for online and catalog sales.

Sounds like a sweetheart deal, but really, it's not. It's not even all that unusual.

Retailers selling products in Idaho must collect sales tax and send the money to the state Tax Commission. Internet retailers need not collect the tax. National retailers such as Cabela's, which sell onsite and online, form separate corporations to perform the different functions.

So the State Tax Commission just followed the rules when it gave Cabela's an exemption for online sales. Now it needs to make sure Cabela's follows the rules and keeps its business functions separate. End of story? Not exactly.

Idaho is out big money — $125 million a year by 2008, according to recent University of Tennessee estimates. Nationally, the lost revenue totals $34 billion. Retailers aren't obligated to collect these taxes, but consumers are required to pay them.

Idahoans are supposed to fess up on line 31 of an annual income tax return or file a Form 850-U. A few honest souls do just that, to the sum of about $350,000 in 2005. That leaves a lot of sales tax money leaking through a cybersieve.

Part of the problem is politics. States such as Idaho want Congress to enact federal legislation to require out-of-state Internet sales companies to collect the taxes and pay the states. Congress has said it might do so, if states conform their sales tax laws.

Meanwhile, how can Idaho collect dollars that could go toward teacher salaries, universities or community colleges, drug treatment in the prisons, or Medicaid?

Here's one idea. It may not be perfect, but it's good enough to get the discussion going. Our idea centers on two time-tested concepts: estimated sales tax tables and "opting out" of these estimates.

First, let's talk tables.

The Internal Revenue Service publishes an annual table to allow Idahoans to determine the amount they pay in state sales taxes. The table estimates the amount of sales tax paid by Idaho families within broad income categories.

Current estimates are that as much as 20 percent of total consumer purchases today are online or catalog sales, but the state can recalculate the table to any number it chooses. The state could assume that a single Idahoan earning under $20,000 would purchase about $500 of online goods, owing $30 in state sales tax. The state could assume a family of four, earning $75,000, makes $2,000 in online purchases and owes $120.

With us so far? Here comes the opting-out part.

The state income tax return would include a line requiring everyone to quantify online purchases. Taxpayers could use the estimate from the table, or insert a higher or lower amount. The choice would be at the taxpayer's discretion, with state estimates serving as a guideline.

Yes, we are relying on taxpayers to heed their conscience and do the right thing. Will it work? It's got to work better than the current system and its measly $350,000 in collections.

But we're open for better suggestions from the tax experts — whether they work for the state, business or legal and accounting practitioners, or serve in the Legislature.

Quietly, to the tune of some $2 million a week, Idahoans fail to pay sales taxes on catalog or online purchases. Wittingly or unwittingly, they are shortchanging schools, health care and other state problems. The state can, and should, address this loophole.