How many Idaho fans would like to have the Oregon Ducks come into the Boise State University stadium with a six-point lead before kickoff? How many businesses do you think like to have a 6 percent disadvantage when selling their products to Idaho customers?
Everyone knows that Idaho sales tax is at 6 percent, and that if you buy on the Internet, out-of-state companies are not required to collect sales tax for Idaho. What many people don’t know is that there is a use tax required by state law to pay on items purchased out-of-state that are to be used in Idaho.
This is an easy tax to avoid in Idaho, as auditing resources are too expensive to audit every business and household, and as far as I understand, there is not a big penalty or risk for avoiding it altogether. However, there are big penalties for Idaho businesses that do not collect Idaho sales tax for sales made to Idaho businesses and households.
Why is sales tax important to the state? As you know, sales tax funds state government activities like schools, infrastructure, defense, parks and recreation, fish and game, etc. These programs have passed through the legislative bodies, which means they have been important to Idaho citizens. Reading through the Idaho State Tax Commission 2011 Annual Report, sales/use tax is a significant player in collected taxes, accounting for 27.3 percent.
Why does this matter to you? This problem could lead to an increase in taxes, fewer new businesses and smaller payrolls for existing businesses.
As we have witnessed, the Internet is becoming a dominant marketplace for information and purchasing. Because of this, more and more companies have a web presence, including mine. With more households and businesses looking online to purchase their equipment and supplies, there are more purchases made without sales tax.
We have had customers buy from out-of-state competitors because they see it as a 6 percent discount. We have had customers provide ultimatums that if we don’t provide a sales tax break or 6 percent discount, they will buy online. Like many Idaho businesses, our margins are too small to offer this discount, and with honesty as a core company value, we will continue to collect the required sales tax. As a result, this leads to lower sales and less collected sales tax for the state.
Lower sales lead to lower employment and smaller payrolls for businesses – which itself leads to lower income tax revenues. Income taxes account for 27.9 percent of state taxes collected. We need to get out of this negative cycle soon.
Is there a solution? Make it a level playing field. I watch with interest as lobbyists request higher sales taxes, local taxes, etc. to help fund more government. Increased taxes would just compound this issue. Just enforce the laws that are currently on the books.
Like many business owners, I value and love the free enterprise system. Everyone has the right to buy from wherever they can get the best price and service for their dollar. We are always hungry for new competitive challenges and are eager to provide new and better solutions for our customers. We are not asking for any advantages, just equal treatment.
Business has changed dramatically in the last 20 years, and we need the state to catch up. I am optimistic that Idaho’s new leadership and legislative bodies can come up with a common-sense solution to this real problem and lead the way for other states to follow.
Tim Carroll, president of BSR Design & Supplies, has been selling to foodservice entrepreneurs for 30 years, with locations in Boise, Twin Falls and Idaho Falls. He can be reached at email@example.com.