DES MOINES — Gov. Terry Branstad’s support for federal legislation to bolster state efforts to collect sales taxes on Internet sales may land him on the wrong side of a “generational divide” with young voters, opponents of the so-called Marketplace Fairness Act said Monday.
Branstad has written Iowa’s congressional delegation, urging them to support legislation that already has passed the U.S. Senate. It would overturn a court case that has impeded states from fully collecting sales taxes owed on online retail sales.
The Iowa governor told reporters at his weekly news conference that Internet-based sales have “dramatically increased” to the point where the tax inequity is causing a competitive disadvantage for bricks-and-mortar Main Street businesses that add the required sales tax to their prices while online outlets do not.
“Those people that are circumventing the payment of sales tax because they are buying out of state, should we help them to the disadvantage of the people that are creating businesses and jobs in the state of Iowa and paying property taxes and collecting the sales tax for the state? I don’t think so,” Branstad said.
Branstad told his weekly news conference that he would earmark any additional revenue generated by federal legislation that increase tax collection compliance on Internet sales be returned to Iowans via lower taxes. The state Department of Revenue has estimated the federal law change could boost state sales and use tax collections by up to $18 million a year.
“I’ve committed that whatever additional revenue the state of Iowa would receive would go to reduce taxes,” he said. “I want to assure that in Iowa we will reduce taxes by however much additional revenue the state would gain if this legislation is approved.”
Groups such as the National Taxpayers Union and Generation Opportunity oppose the federal change because the proposed legislation amounts to a tax increase that would hit younger people harder because they are prolific online shoppers.
Terence Grado, 25, director of state and national policy for Generation Opportunity, a national, nonpartisan organization advocating for economic opportunity for young people through less government and more freedom, said the change will hurt young entrepreneurs and young consumers.
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Grado said it was not surprising that Branstad, 66, landed on the opposite side of a “generational divide” regarding attempts to tax and regulate the Internet.
“This is a tax that’s rather generational in nature. This affects young people more,” said Grado, noting that “millennials” already have it tough, facing the highest sustained youth unemployment since World War II.
“It’s really going to hurt this younger generation,” he said. “Officially, when we buy something, we’re supposed to follow up and pay it. The reality of it is that doesn’t get done, and it really is another tax in pragmatic, realistic terms.
“It may be technically on the books, but it’s not something that’s been enforced and really been something for consumers to worry about. It’s really an attempt to raise more revenue for the government, and young people are really going to oppose that, particularly now.”
The National Governors Association, in a report last week, noted that state sales tax collections have not rebounded as rapidly since the end of the recession, in part because of their inability to collect more than $23 billion from transactions conducted over the Internet or through catalogs.
“I don’t see this as a tax increase,” Branstad said. "I just see this as a matter of fairness."
Grado said an adverse outcome on the Internet tax issue may stick with young people.
“I think there is evidence to say that they may remember these people who supported and pushed it, and their vote will reflect that when they’re up for re-election,” he said.