Senator supports online sales tax reform

WASHINGTON Fri Jul 29, 2011 10:40pm EDT

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WASHINGTON (Reuters) - Cash-strapped states seeking to collect billions in taxes from online transactions gained an ally in Washington on Friday when a senator introduced a bill for a federal solution to the problem.

Struggling with weak economies, states will lose an estimated $10 billion this year and $11.4 billion next year in sales taxes that go uncollected on online purchases, according to studies by three professors at the University of Tennessee.

Although the fate of the bill by Democratic Senator Dick Durbin was uncertain given the anti-tax environment on Capitol Hill, his measure is backed by the National Governors Association and the National Retail Federation and even earned a pledge of cooperation from giant online retailer Amazon.

"It's being brought to a head by actions at the state level," said Indiana state Senator Luke Kenley, who heads the Streamlined Sales Tax Governing Board, a group of 24 states that has been lobbying Congress to enact a uniform sales tax for all retailers -- online and bricks and mortar alike.

Also pushing the issue to the forefront has been the sheer size of the online retail market -- $165 billion last year, according to Bernstein Research, which predicts 15 percent annual growth over the next decade.

"Online sales are growing exponentially and this loophole is creating winners and losers based on the tax code," says Jason Brewer of the Retail Industry Leaders Association, a trade group in favor of federal rules.

Durbin argued his bill involved no new taxes and applied only to taxes already imposed by the states that are not being collected. His goal is to provide states with the clear authority to require retailers to collect sales taxes already owed, treat all retailers equally regarding sales tax collection, and release consumers, currently expected to calculate and send in the taxes themselves, from that responsibility.

AMAZON

Amazon, the largest e-retailer, has been locked in a series of state-by-state battles over the non-collection of taxes. Amazon declined comment on Durbin's bill. But in a letter to Durbin, the company's vice president for global public policy, Paul Misener, supported returning discussion of the interstate collection of sales tax to Congress and pledged to cooperate.

On a state level, Amazon has been less accommodating. It is backing a referendum to end California's new tax collection policy and has pushed for and gotten incentives in Tennessee and South Carolina tying sales tax holidays to putting Amazon facilities and jobs in those states. The company argues the current sales tax system is too complex for it to handle reasonably.

A recent study by analysts at William Blair & Co of more than 2,000 items for sale at 24 retailers found more than half the products were also available on Amazon.com at an average of 11 percent below store prices. If Amazon collected all state sales taxes, that price discount would drop into a "mid single-digit" range, the analysts said.

Amazon warned in a recent SEC filing that if states or foreign countries succeeded in forcing the company to start collecting taxes where it did not do so already, it "could result in substantial tax liabilities, including for past sales, as well as penalties and interest."

Brick and mortar retailers have been waiting for federal action for nearly two decades since a Supreme Court decision encouraged Congress to come up with some kind of national framework for remote sales taxes.

(Reporting by Nanette Byrnes in Chapel Hill, North Carolina; additional reporting by Alistair Barr in San Francisco; Editing by Peter Cooney)

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