LANSING – In early June, supporters of legislation designed to apply the same 6 percent tax to purchases via the Internet as customers pay at traditional stores thought the bill was set to come up for a vote in the House Tax Policy Committee only to face disappointment.

Democratic support for HB 4202 and HB 4203 , which would extend the sales and use taxes, respectively, to Internet sales was not there.

Rep. Vicki Barnett (D-Farmington Hills), minority vice chair of the House Tax Policy Committee, said Tuesday that the problem is that the Department of Treasury has yet to say which tax will apply, the sales tax or the use tax.

While both taxes are 6 percent, the revenue each generates goes in much different directions. Most of the sales tax goes to schools with a big chunk to local governments. Two-thirds of the use tax goes to the General Fund with the remainder to the School Aid Fund.

Barnett said she opposes as unconstitutional the August 2014 ballot proposal that will ask voters to earmark a portion of use tax revenues to a new authority that will reimburse local governments for some of the revenue they will lose after scaling back the personal property tax, so she needs to know whether Treasury plans to apply the sales or use tax to Internet sales.

“If this money is use tax, I’m not interested. If it’s sales tax, then we can have a conversation,” she said. “I cannot in good conscience vote to tax citizens who buy merchandise on the Internet if I cannot tell them what their taxes are going to be used for.”

Currently, the sales tax applies to purchases made in person with the use tax applied to remote sales.

Barnett said Treasury officials agreed to meet with committee members during the summer to resolve the issue. And she said the concern from Michigan retailers about companies like Amazon having an unfair advantage is real.

“There is nobody on the committee that does not want to help our main street businesses,” she said.

Treasury spokesperson Terry Stanton said department officials continue to research the issue and will reach out to Barnett’s office.

Rep. Jeff Farrington (R-Utica), chair of the Tax Policy Committee, said he hopes the department and Ms. Barnett can work out the issue, but he said Barnett is the only person to voice collecting the use tax versus the sales tax as a problem.

Farrington also added that he will leave it “up to the experts” in the Department of Treasury to decide which tax would be better collected by the legislation.

“To me, it’s not about preference; it’s about what’s right,” he said.

He also said the legislation will be brought up in committee again in September with some minor changes and hopefully be reported.

James Hallan, president of the Michigan Retailers Association, said the bills are a matter of fairness, and action sooner rather than later is best.

“We were very disappointed (when the committee did not report the bills) because it is an issue of basic fairness and it is a funding issue for schools. … Without action we’re not providing additional support for public schools, and we’ve created this unevenness,” he said.

Hallan said he is confident the bills will move in the fall. He also said the bills would most likely only capture Amazon, and no other retailers. Federal action would be needed to require all internet retailers to charge a state’s sales and use tax.

“But, it’s a darn good start,” he said. “It’s a basic fairness issue. It is not going to go away. The spread is going to get greater … the issue is has to be addressed.”

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