Amid debate over online sales tax, Maryland’s top fiscal officer urges residents to shop at brick and mortar stores

December 11, 2011

Maryland Comptroller Peter Franchot is on a mission to get Marylanders to shop the old-fashioned way: at brick and mortar stores where, unlike buying from out-of-state online retailers, they have to pay state sales tax.

Franchot is swinging by malls throughout Maryland as part of his annual “Shop Maryland for the Holidays” campaign, urging residents to stay off the Internet when shopping because the state loses millions of dollars each year from out-of-state online retailers who do not collect sales tax from Maryland residents. He plans a stop in downtown Takoma Park later this week.

It is his foray into a nationwide debate among businesses and legislators over how states and online sellers like Amazon.com, eBay and Overstock.com should collect sales tax from consumers who don’t live in the states where the retailers have a physical presence. Online retailers already have to collect sales tax from customers in their own state, but a 1992 U.S. Supreme Court case, Quill v. North Dakota, says retailers must collect sales tax from out-of-state customers only if they have a store, office or some other physical presence in the customer’s state.

“Comptroller Franchot believes this is a tax fairness issue and that it puts Maryland’s brick and mortar stores at a competitive disadvantage,” said Joseph Shapiro, spokesperson for Franchot’s office.

In November, the comptroller published a study finding that Maryland will lose $219 million in tax revenue this year from the sale of goods by remote sellers (which includes e-commerce and traditional catalog sales).

Virginia state officials have taken no formal position on the issue, and could offer no estimates for how online sales affect tax revenues. The D.C. tax and revenue department did not respond to a request for comment.

The National Retail Federation, the Washington-based trade group, is supporting three bills — the Main Street Fairness Act, Marketplace Equity Act and Marketplace Fairness Act — in Congress that would authorize states to require online retailers to collect local sales tax. None have come up for a vote yet.

Advocating for an Internet sales tax is the retail group’s top priority right now, said David French, chief lobbyist for the NRF, which this year made a concerted effort to beef up its in-house lobbying manpower.

States lose a combined $24 billion each year from untaxed online purchases, said French, adding that states with more dire budget needs could benefit from the tax revenue.

“These bills will impact states with deepest budget problems,” French said, who added that future cuts to government spending could hit the Washington region especially hard.

Major online retailers remain split on the proposed legislation. Amazon.com has long supported a national approach for state sales tax collection, as envisioned in the Main Street Fairness Act, but opposes state laws attempting to require sellers to collect without congressional authorization. In September, it cut a deal with California legislators to delay collecting sales tax from California customers until 2012 in hopes Congress passes a national law that trumps the state law before then.

Overstock.com opposes the three pending bills and has released its own proposal this month that shifts tax-collecting duties away from retailers and onto states. The Overstock Equity in Sales Tax Collection Act Bill, which has yet to find a congressional sponsor, would require states to provide retailers with state-sanctioned software to facilitate the collection of taxes from the nearly 10,000 tax jurisdictions in the United States. It would also require states to reimburse 2 percent of total sales tax collected to retailers, as “compensation for doing the state’s work for being the tax collector,” said Overstock.com president Jonathan Johnson.

Catherine Ho covers law and lobbying for the Capital Business section of The Washington Post. She previously worked at the LA Daily Journal, the Los Angeles Times, the Detroit Free Press, the Wichita Eagle and the San Mateo County Times.
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