The Tribune Democrat, Johnstown, PA

Multimedia

July 9, 2012

Taxes for online shopping gaining support in states, Congress

Online shopping in some states is about to become more expensive.

A wave of states have passed laws that will require consumers to pay sales tax on all Internet purchases as soon as next year. Other states and the District are pursuing similar measures. And in Maryland, Gov. Martin O'Malley (D) wants to go further and levy a tax on songs and other digital products bought through popular sources such as iTunes.

For states struggling in the troubled economy, this could mean $23 billion in new revenue each year, according to the National Conference of State Legislatures. Had online retailers collected sales tax this year, Virginia would have added nearly $423 million to its coffers, while Maryland would have seen $376 million and the District $72 million, the group said.

The movement in state capitals is driving newfound support for a proposed bill in Congress that could make collection of sales tax a standard practice on the Web, no matter where a consumer logs in to shop.

Bricks-and-mortar retailers are cheering the moves. For years, their online rivals have resisted charging sales tax, giving them a price advantage. They have cited a 1992 Supreme Court ruling that let online companies off the hook if they didn't have a physical presence in the state where the customer lived.

A Web trade association that includes eBay, Overstock.com and Facebook is fighting the new bills. But notably, Amazon.com appears to have waved the white flag and supports the sales tax measures. Some analysts said they observe a shift by the online retailing leader, which could lead to a fundamental change to the rapidly growing e-commerce business.

Technically, when consumers shop online, they are supposed to pay sales tax by reporting it on their state tax returns. But as it turns out, Americans aren't always honest when it comes to paying their taxes.

For that reason, traditional retailers say that their online counterparts should collect sales tax when a consumer makes a purchase.

Prices are so low online that retailers have long decried what they call the "showrooming" effect. Customers visit shops, try out different products and then buy them cheaper online, sometimes on their smartphone while they are still standing in the store.

"You've been doing all of the work and then the online competitor steals the sale," said David French, senior vice president of government relations at the National Retail Federation, a trade group.

Online shopping has shown no signs of slowing down. Last year, it generated $200 billion in revenue. In the first three months of this year, e-commerce jumped by 15 percent over the first quarter of 2011. Meanwhile, total retail sales grew 6 percent over the same period, according to the Commerce Department.

"All retailers want is a level playing field," said Jason Brewer, vice president of communications and advocacy at the Retail Industry Leaders Association, an Arlington, Va.-based trade group.

After the recession, states had to find a way to plug holes in their budgets. It was impossible to ignore taxes that were already owed to them by law.

California, hit particularly hard by the housing bust, pressed Amazon to collect sales tax because its local online affiliates — smaller sites that direct traffic to its Web site — were located in the state. After a long and bitter fight last year, Amazon agreed to add the tax, which goes into effect in September.

Then Texas, a huge market for Amazon, argued that the company's Dallas distribution center constituted a physical presence. After a similar battle, Texans this month started paying sales taxes on Amazon purchases.

In the course of these clashes, Amazon's approach to dealing with states seemed to change. Rather than threatening to shut down distribution centers or cut ties with online affiliates, the retail giant started cutting deals with state governments, analysts said. Amazon will begin charging sales taxes for customers in eight states, including Virginia, over the next four years. It currently collects sales taxes in six others.

The shift probably had to do with its ambitious expansion plans, said French, the National Retail Federation vice president.

"Amazon's business model is changing," French said. "It wants to be moving towards more rapid delivery."

To do that, it needs to open more distribution centers around the country.

Amazon has complained that collecting state sales taxes is too complicated and has long backed federal legislation to make the practice more straightforward. The latest federal proposal_ the Marketplace Fairness Act — has strong bipartisan support and appears to be moving forward.

"We strongly support passage of the Marketplace Fairness Act because it's time to resolve the sales tax issue," said Scott Stanzel, a spokesman for Amazon.

The bill proposes that a state can decide whether to enforce collection of its sales tax. If the state chooses to, then it should simplify its tax system according to conditions outlined in the bill.

Sales tax rates generally range from 5 to 10 percent, depending on the type of product as well as the jurisdiction (cities and counties can impose their own taxes on top of state rates).

Traditional retailers with an online presence, such as Barnes & Noble, Wal-Mart and Target, also support the bill, do groups such as the National Retail Federation and the Retail Industry Leaders Association.

On the other side is NetChoice, the trade association of e-commerce companies. NetChoice has opposed sales tax collection and overturning the physical-presence ruling by the Supreme Court. Its argument, which Amazon has used in the past, is that tax calculation for thousands of jurisdictions countrywide is an impossibly complicated task.

"The burden falls disproportionately on a small business," said Steve DelBianco, executive director of NetChoice. "It has no accounting or IT staff to keep track of tax rules and holidays."

The new bill exempts online businesses making less than $500,000 a year from collecting sales tax. NetChoice says that threshold is too low. It also notes that the amount states will gain from online sales taxes is less than 1 percent of total state tax revenue.

The measure, sponsored by Sens. Mike Enzi (R-Wyo.), Richard J. Durbin (D-Ill.) and 12 others, was introduced in November. The House Judiciary Committee is set to hold a hearing on it July 24.

Amazon said that even with the tax, it expects a minimal impact on its sales.

"They're still winning on price for the most part, even as they collect taxes," said Mark Miller, an equity research analyst at William Blair & Co.

Still, local retailers hope the sales tax measures will give them a chance to compete.

"I've got to file a form every month, and I'm only one tiny business," said Val Morgan, owner of Idle Time Books, a 30-year old bookstore in Adams Morgan. "If I can do it, surely Amazon can."

Text Only | Photo Reprints
Multimedia
  • scifi19.JPG VIDEO | Sci-Fi expo connects with fans

    The Force is strong with Casey Bassett.
    In two years of feverish planning and laborious love, the 24-year-old has roughly tripled the size of his homegrown geek convention, Sci-Fi Valley Con, being held this year at the Jaffa Shrine in Altoona. Today is the 2013 convention’s final day.

    May 18, 2013 1 Photo

  • Bus_15_b VIDEO | Deer gets on, off city bus

    A CamTran bus picked up an unscheduled passenger on Tuesday evening – a white-tailed deer.

    May 15, 2013 1 Photo

  • brian cano VIDEO | Bards behind bars

    In the latest endeavor for Brian Murphy, the 33–room Grand Midway Hotel in Windber might be refitted to become a penitentiary – a commune for delinquents, but specifically for delinquent writers. He calls it “Writer’s Jail,” and it serves the artistic community by forcing writers to do the one thing they often cannot bring themselves to do: Actually write.

    April 27, 2013 2 Photos

  • Online Sales Taxes_Denn.jpg Internet sales tax bill to hit roadblock in House

    A bill to require Internet shoppers to pay sales taxes for online purchases may be cruising through the Senate but it will soon hit a roadblock in the House.

    April 26, 2013 1 Photo

  • Setting standards for cyber sharing

    A cybersecurity bill that riled privacy advocates when it was approved in the U.S. House of Representatives last week is looking like a non-starter in the Senate this week. And both opponents and proponents say its best chance at resurrection is to put a leash on exactly what types of information companies can share.

    April 26, 2013

  • prom_firefighters VIDEO | Drill provides glimpse of reality: Responders stage grim demonstration of accident scene

    Police, fire and EMS responders from Patton and Carrolltown rushed to Cambria Heights High School Thursday afternoon, responding to a call that detailed a two-vehicle accident with entrapment.
    Although it was a drill, designed to be a graphic depiction of what happens when unsafe driving practices lead to a wreck, the message sent to the dozens of  students surrounding the scene was clear.

    April 25, 2013 2 Photos

  • New app helps Icelanders avoid accidental incest

    You meet someone, there's chemistry, and then come the introductory questions: What's your name? Come here often? Are you my cousin?

    In Iceland, a country with a population of 320,000 where most everyone is distantly related, inadvertently kissing cousins is a real risk.

    A new smartphone app is on hand to help Icelanders avoid accidental incest.

    April 22, 2013

  • Boston Marathon-Five _Denn.jpg In Boston manhunt, online detectives flourish

    The intensive manhunt for the bombers behind the deadly Boston Marathon attacks didn't take place only on the streets with professional police officers and SWAT teams. In an era of digital interactivity, it also unfolded around the country from laptops and desk chairs filled with regular folks.

    April 22, 2013 1 Photo

  • Senate bill jeopardizes tax-free online shopping

    States could force Internet retailers to collect sales taxes under a bill that overwhelmingly passed a test vote in the Senate Monday.

    April 22, 2013

  • victoria_4 VIDEO | Historic theater now only a memory

    Dozens of Gallitzin residents young and old gathered on a brisk Saturday morning to watch the historic Victoria Theater along Jackson Street come down.

    April 13, 2013 1 Photo

Poll

Should Pennsylvania privatize portions of the state prison system?

Yes
No
I'm not sure
     View Results

AP Video
Obama Offers Drone Strike Defense Raw: Heckler Interrupts Obama on Guantanamo A Slice of Apple History Up for Grabs Johnson: Don't Blame Islam or UK Policy Raw: 80-Year-Old Climbs Mount Everest Wash. State Man Arrested Following Ricin Scare Chain-Reaction School Bus Crash Injures About 50 Raw: Scuffles in London After Hacking Death Texas Students Coach Teachers on Fitness New Forecasting Tool Eyed for Hurricane Season Meet MJ, the Bike Riding Tabby Cat Britain Attack Believed Linked to Radical Islam Raw: Kevin Durant Tours Moore After $1M Pledge Man Shot While Questioned in Boston Probe Weiner Launches Bid to Become NYC Mayor School Storm Protection Spotty in Tornado Zones Moore Native Toby Keith Tours Tornado Damage
Community Calendar
Loading…
Events by eviesays.com
House Ads
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide