The Trump administration is weighing whether to support online sales taxes that could give state governments greater flexibility in their budgets.
Mnuchin told members of the appropriations subcommittee that the policy could be an important way for states to fund infrastructure -- an issue that President Trump has touted as a key part of his agenda with a $1 trillion spending plan.
Some analysts have questioned the feasibility of that plan because it would cut federal investments in infrastructure by tens of billions of dollars. But allowing states to require companies to collect and remit taxes on online sales could help make up some of the shortfall.
While Americans are technically expected to report taxes on online transactions, the rule is rarely followed or enforced. Companies may voluntarily collect online sales taxes on a state's behalf, but they aren't required unless they have a physical presence of some kind in the state.
A bill in Congress, the Marketplace Fairness Act, would allow states to make collection of online sales taxes mandatory for companies. The bipartisan proposal — co-sponsors include Sens. Mike Enzi (R-Wyo.) and Richard J. Durbin (D-Ill.) — contains an exemption for small businesses. Broadly speaking, however, the bill could bring in tens of billions of dollars in additional revenue for state budgets.
During Wednesday's hearing, Sen. Joe Manchin III (D-W.Va.) told Mnuchin that collection of online sales taxes would be “almost salvation to most of the states, especially rural states that don’t have the expertise or the far-ranging ability to chase down all these Internet sales that are coming in.” He said he hoped the administration would “look at this seriously.”
Massive online retailers such as Amazon — whose chief executive, Jeffrey P. Bezos, also owns The Washington Post — were initially opposed to the bill years ago but have since come around. Amazon now collects sales taxes in 46 states and the District of Columbia. It increasingly operates physical warehouses in many states, and complying with a federal law would be less burdensome than working with a patchwork of state laws, some analysts say.
Yet Amazon, due to its sheer size, may be better equipped to collect sales taxes than its smaller rivals. "It shifts the tax burden onto businesses as they would now have to collect a sales tax in these types of transactions and report and file to dozens of other states," wrote Matthew Adams of Americans for Tax Reform in a blog post last month.
Even if the Trump administration comes out in support of online sales taxes, that won't necessarily mean the rapid passage of congressional legislation on the issue. It's also worth pointing out that online sales taxes are distinct from taxes on Internet service, which Congress and President Barack Obama banned in 2016.