The Mail-Order Loophole
California could be--no, should be--picking up an easy $390 million a year in additional revenue through the simple, reasonable device of collecting sales taxes on booming catalogue sales. But the mail- and-telephone-order industry is waging an all-out battle in Congress against legislation by Rep. Jack Brooks (D-Tex.) that would permit states to collect sales taxes on direct-order business. The Brooks bill should be passed, thus closing a loophole that gives the mail-order industry a free ride not enjoyed by other retailers.
Perhaps it made sense in 1967 for the Supreme Court to rule that mere solicitation by mail did not constitute doing business in a state, and that sellers thus were not required to collect taxes on their sales for the states. But times have changed. Today, direct mail has 88 million customers and reaps 15% of the national retail market, according to columnist Neal Peirce. The mail-order houses sent out the equivalent of 50 catalogues for every American last year. State governments lose an estimated $3 billion in taxes a year.
The Brooks bill would affect the 350 largest mail-order houses accounting for nearly all the business. Those businesses are using their computer-generated mailing lists in an effort to get customers to fight back for them by pressuring their members of Congress to oppose the Brooks bill. The legislation has had the support of California tax officials, most notably Board of Equalization member Ernest J. Dronenburg Jr. of San Diego. Large chain retailers who have stores in the various states, and must pay the tax, are backing the bill.
Some of the opposition is downright silly. Sen. Robert W. Kasten Jr. (R-Wis.), whose state includes the popular Lands’ End outlet, claimed the Brooks bill would unfairly target the elderly, the handicapped, farmers and others who rely on catalogues for ordering their basic needs, Peirce reported. But the sort of upscale preppie and yuppie items found in most of these boutique catalogues hardly qualify those who buy from them for hardship status.
The mail-order houses also complain about the burden on customers in figuring their tax. But the bill’s supporters note that the sell-by-mail businesses easily can program their computers to levy the proper tax for the customer. Sears, J.C. Penney and other national chains already seem to do so without a problem.
Supporters of Brooks have not always been together on some aspects of the bill. The states and cities have been fighting over how to share the proposed windfall. But that dispute should not cloud the real issue. Congress should close this loophole now and restore equity to sales tax collections.
