Retailers, States Are Uneasy Partners From
at 11:45 AM
Support from the online retail community for taxing all Internet sales has been growing since early this year, when a small group of major e-commerce companies announced that they would begin voluntarily collecting sales taxes on all Internet purchases (See "Big Stores To Charge Sales Taxes Online," The Washington Post, Feb. 7).
The group, which included Wal-Mart Stores Inc., Target Corp. and Toys R Us Inc., quietly negotiated with many of the states involved in the Streamlined Sales Tax Project. In return for collecting the taxes, the retailers asked the states to forgo any claim to taxes that they should have collected in the past but didn't.
Before the deal, the retailers' online sites collected sales taxes only in states where they had physical operations. For example, Wal-Mart has stores in all 50 states, but its Walmart.com subsidiary has a physical presence in only nine states.
There are several states that are unhappy with the "amnesty" deal because they believe the retailers are liable for taxes due on past Internet sales.
California, for example, took legal action to compel Barnes & Noble Inc. to pay up, dismissing the bookseller's claim that its barnesandnoble.com subsidiary is unrelated to the parent company. Illinois, meanwhile, recently sued retailers like Blockbuster and Gateway Computers for back taxes owed on Internet sales. (See "Retailers' Online Tax Deal Faces New Challenges," washingtonpost.com, Feb. 25, and "Illinois Sues Web Merchants for Taxes," washingtonpost.com, Sept. 19.)
Amazon's efforts to change the legislation could doom the states' sales tax plans, said an official with eBay who is familiar with the negotiations.
"The fundamental problem with Amazon's proposal is that it treats someone who sells through one channel online differently than a person who sells through another," said the official, speaking on condition of anonymity. "To discriminate against online aggregators is a guaranteed way to stop any distance sales tax plan for at least 10 years, and we'll go to the mat on that one."
Internet Sales Tax Effort Builds Momentum
Thus far, Congress has been unwilling to give the states authority to tax all online sales, citing a 1992 Supreme Court decision that severely limited states' ability to tax catalog sales. In 1998 and again last year, Congress rejected efforts to give the states taxing authority if they came up with a sufficiently simple tax plan.
To answer that challenge, a group of state tax officials started the Streamlined Sales Tax Project, which has spent the past three years drumming up support for its plan to revamp arcane state tax laws to be more compatible with the Internet economy.
The negotiations with Amazon reflect the coalition's efforts to win support from the business community.
"Part of what retailers and states have been doing in an effort to be successful in their legislative strategy is reaching out to groups that have been critical of this plan and asking what needs to happen to make this bill acceptable to them," said Steve Kranz, tax counsel for the Council on State Taxation.
"On a fairness and level playing field basis, if it buys us the support of Amazon we're willing to include their suggestions," said Maureen Riehl, vice president of state and industry relations for the National Retail Federation and a participant in the negotiations.
The sales tax project has drawn bipartisan support among lawmakers as well, even from traditionally anti-tax Republican lawmakers who say it's not fair that main street stores are required to charge sales taxes while their online competitors are not.
So far, 17 states have enacted legislation to bring their tax codes in line with the agreement. Three states -- Minnesota, Texas and Washington -- have implemented much of the agreement, but have balked at changing the way taxes are collected and distributed.
The legislation requires participating states to charge sales taxes based upon where the buyer lives. Some states, including Illinois, Texas and Washington, prefer to base it on where the transaction takes place.