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Congress steps into states' scuffle over sales tax
November 30, 2011 / 9:37 PM / 6 years ago

Congress steps into states' scuffle over sales tax

Committee chairman Rep. John Conyers (D-MI) holds a House Judiciary Committee hearing on the George W. Bush presidency, called "Executive Power and Its Constitutional Limitation", on Capitol Hill in Washington, July 25, 2008. REUTERS/Jonathan Ernst

WASHINGTON (Reuters) - After the frenzy of “Cyber Monday,” members of Congress on Wednesday entered into a different scuffle over web shopping: states’ desire to collect sales taxes from Internet retailers.

“Main street retailers -- local mom and pop stores in many instances, and even some of the big box retailers -- suffer when they have to collect the sales tax but on-line retailers don‘t,” said Michigan’s Rep. John Conyers at a hearing. “Fewer purchases at local retailers means less local jobs.”

Conyers has introduced one of three bills currently in Congress to create a system for collecting sales taxes across state lines.

In 1992, the Supreme Court said the patchwork of state tax laws made it too difficult for on-line retailers to collect and remit sales taxes. Currently, states can only tax Internet sales made by companies that have physical presences within their borders.

“We ought to make sure there are no new taxes on people of several states,” said Rep. Mike Pence from Indiana, a Republican.

Still, he added, “I don’t think Congress should be in the business of picking winners and losers and inaction by Congress today results in a system that does pick winners and losers.”

At the hearing of the House Judiciary Committee, Amazon.com signaled a major shift in its view of sales taxes.

Paul Misener, vice president for its world-wide public policy, said the mega-retailer supports federal legislation that would “authorize the states to require out-of-state sellers to collect the sales tax already owed.”

In recent years, the company’s maneuvers to skirt collecting the tax in states where it does not have a corporate presence caused leaders to call the levy the “Amazon tax.”

Misener said federal legislation would allow Congress to help states address budget shortfalls, but that it should not create an imbalance between small and large companies.

“Congress may, should, and feasibly can attain the objectives of protecting states’ rights, addressing the states’ needs without federal spending, and leveling the playing field for all sellers -- but only if any ‘small seller exception’ is kept very low,” Misener said.

Online sales reached a record $1.251 billion on Monday, up 22 percent from the same day last year. Shoppers returned to work after the Thanksgiving holiday on “Cyber Monday” to buy items on their office computers, making it the biggest day ever for U.S. online retail.

Amazon’s same-store sales surged 51.4 percent during the first half of the day, compared to a year earlier, while sales via eBay’s online marketplace climbed 17.1 percent.

States and local governments that are slowly recovering from the 2007-09 economic recession, which caused their revenues to collapse, are eager to tap into that activity. A University of Tennessee study estimated that annual sales tax revenues lost to online retail in 2012 would total $11 billion.

For more than a decade, a board of state officials has worked to create the “Streamlined Sales and Use Tax Agreement” for a consistent system of remitting sales taxes. Two dozen states have passed legislation conforming to the agreement.

“This is not a tax on the Internet. This is a tax on the consumer who is going to receive the government services in whatever state that is,” said Indiana State Senator Luke Kenley, representing the governing board, at the hearing.

In September, California rolled back legislation requiring taxes be collected on sales posted by online retailers through their affiliates located in the state. In exchange, Washington-based Amazon dropped its threat of a costly ballot fight.

Patrick Byrne, CEO for another mega-retailer, Overstock.com, told the committee complying with each state’s unique tax code was difficult and businesses should not be responsible for upholding various tax laws.

Not all states have sales taxes, and those that do charge different rates.

“If states want or need to hire retailers to collect sales taxes from their residents, true fairness requires that the states provide them with: plug-and-play software solutions, indemnification from computation, collection, and administration errors, and compensation for doing the tax collection work on behalf of those states,” Byrne said.

eBay shot back at Amazon over the small business issue, contending that many merchants using its site have thin margins that would shrink even more if they had to charge sales taxes.

“If you believe that small business retailers should not be harmed by a change in remote sales tax law, then the definition of what constitutes a small business that would be preserved from new tax collection requirements is an important one,” said eBay Inc. Vice President and Deputy General Counsel of Government Relations, Tod Cohen.

Additional reporting by Alistair Barr and Jim Christie in San Francisco; Editing by Diane Craft

Our Standards:The Thomson Reuters Trust Principles.
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