July 25, 2012 at 11:31 AM ET
Online sales are soaring. State budget deficits are growing. And tax-free Internet sales are once again in the spotlight.
Congress is considering bills that would “level the playing field” by allowing states to require all online merchants doing business in that state to collect sales tax. Web retailers have largely had a free ride since a 1992 Supreme Court ruling that only merchants with a physical presence in a state are responsible for collecting sales tax.
The House Judiciary Committee held a hearing on the Marketplace Equity Act of 2011, although it is unclear whether the bill has a chance of coming to the floor in the final months of this election year. Collecting taxes on Internet retail sales could raise $20 billion a year for cash-strapped states and municipalities, the nation’s governors estimate.
Tennessee Gov. Bill Haslam, a Republican who said he does not believe in tax hikes, testified in support of the bill, saying it’s about “collecting taxes already owed.”
The National Retail Federation, which supports the bill, says online sales taxes would help fight the growing problem of “showrooming,” in which a customer goes to a store, checks out a product and then buys it online to save money, including tax.
“We’ve all seen a lot of Main Street retailers close their doors over the last few years,” says Rachelle Bernstein, a vice president with NRF. “Obviously, the economy is one reason but they’re also closing their doors because they can’t keep up with competition from the Internet.”
Bernstein says tax laws must be applied equally, whether a customer goes to a store, shops on their computer or orders from a catalog by telephone. Otherwise, she argues, the government is giving “a tax advantage” to one type of business over another. And that she says is unfair.
Online retailers agree -- up to a point. This week, the Direct Marketing Association, the American Catalog Mailers Association, the Electronic Retailers Association and NetChoice formed the True Simplification Trust Coalition (TruST) to fight what they call “unfair Internet sales taxation.”
“The ultimate goal of the TruST Coalition is to simplify the state-by-state taxation process so that when online merchants are obliged to charge state taxes, they aren't overwhelmed by the logistics and potential legal repercussions of this added responsibility,” says Jerry Cerasale, senior vice president of government affairs at the Direct Marketing Association.
“We don’t dispute that the tax is due,” says Hamilton Davison of the American Catalog Mailers Association. “The issue is how it’s collected. It’s not easy to collect for 9,600 different state and local tax jurisdictions.”
The TruST Coalition wants every state to charge the same sales tax rate for online purchases. If the rate changes from state to state, the coalition says online marketers should have access to “subsidized and certified software” that automatically computes the sales tax to be charged for each transaction.
The House bill does not require states to collect online sales taxes if they don’t already have a sales tax. Five states -- Alaska, New Hampshire, Delaware, Montana and Oregon -- do not.
Amazon.com, the 800-pound gorilla of Internet retailing, has expressed cautious support for sales tax collection covering online sales.
Amazon’s CEO Jeff Bezos spoke on the topic last year in a visit to the headquarters of Consumer Reports. The magazine reported on its website at the time that Bezos supported federal legislation that requires everyone to follow the same rules although cautioned that sales tax is very complicated.
Industry observers say Amazon’s support of tax collection could be in its own self-interest. The company has physical operations such as warehouses in a growing number of locations. It even has been suggested the company would profit from a change in the law because it would process sales tax obligations for its third-party merchants. And of course, Amazon would charge a fee for that.
The National Retail Federation says there’s a lot of momentum behind these bills and it hopes for congressional action before the end of the year.
The TruST Coalition says it believes lawmakers will continue to study the bill to learn more about the potential downsides of more government regulation.
There’s a lot of money at stake here. The nation’s governors say uncollected taxes on Internet sales means a loss of nearly $20 billion a year.
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