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Lawmakers Fight for Online Sales Tax Collection

4 min read

In a retail world into which the Internet is steadily encroaching, brick-and-mortar shops are fighting an increasingly bitter battle with their online rivals, but legislation introduced in Congress may represent some resolution.

The biggest battle is being fought over sales tax, which online retailers are rarely required to collect.

"Because of the technology of the iPhone, a consumer can literally walk into a store, ask questions, then make a purchase in front of them on their smartphone to avoid paying sales tax," said Jason Brewer, spokesman for the Retail Industry Leaders Association, which advocates on the issue. "Consumers still technically owe sales tax."

Robert Coon, who represents the Alliance for Main Street Fairness in Arkansas, said there’s hope in two proposed federal measures, the Marketplace Equity Act and the Marketplace Fairness Act, both introduced in 2011.

The bills haven’t been considered on the floor of Congress yet, Coon said, but they’ve received wide bipartisan support. The Equity Act was introduced by Arkansas Rep. Steve Womack, the Republican from Wal-Mart Stores Inc.’s home district, as well as Rep. Jackie Speier, a Democrat from California.

The bills have been gaining co-sponsors, including Arkansas Republicans Rep. Tim Griffin and Sen. John Boozman. Coon said co-sponsors had been joining even as recently as September.

"I think the House bill has more than 50 co-sponsors, both Republican and Democrat, and the Senate bill has more than 20," he said. "Both pieces of legislation are pretty similar, and they have gained some steam and momentum."

The bills, essentially, authorize each state to require online or out-of-state retailers to collect sales taxes. It’s received bipartisan support thanks mainly to its giving each state an option, as opposed to a federal mandate like the Main Street Fairness Act, introduced in 2011 by Sen. Dick Durbin, D-Ill.

Brewer said Durbin’s bill was "not under consideration" and has essentially been replaced by the two Marketplace bills.

"Durbin didn’t give states options," Coon said. "Conservatives had issues, and even some Democrats had issues with the federal mandate approach."


Tax Ramifications

Still, things have slowed down in Congress during the election season.

"One of the opportunities this legislation has is it’s included in the lame-duck session of Congress," Coon said. "As we’re approaching the fiscal cliff and sequestration, one of the things talked about is reforming how we’re spending federal dollars and trying to address the spending reductions that need to be made. The federal government spends a lot of money on states."

More state revenue could reduce reliance on federal dollars, helping soothe the deficit in the long run, he added.

But the direct and immediate impact would be on state governments.

"My ultimate concern is the loss of tax revenue for the state," said David Cockcroft, treasurer for Wordsworth Books & Co. in Little Rock.

Arkansas collected about $2 billion in sales taxes in 2008. That’s fallen to $1.5 billion in 2011. The International Council of Shopping Centers stated that, collectively, states were losing between $21.5 billion and $33.7 billion annually in uncollected sales tax.

Arkansas law requires consumers to pay uncollected sales tax through their annual income tax returns. But that rarely happens.

"Most people are unaware they’re supposed to pay it," Coon said. "The Department of Finance & Administration has gone after people, made them go back five years and calculate all their purchases online, then write a check at the end, sometimes with penalties and interest."

In the meantime, online purchases can appear to be several percentage points cheaper than in-store purchases.

"It provides a significant, built-in advantage for online retailers," Brewer said. "If a state has a sales tax, it should apply equally to everybody. The government shouldn’t pick winners or losers."

In sales tax fairness, the losers are the very businesses that employ local workers and otherwise contribute to what Brewer called "the fabric of the community."

Coon agreed.

"I think people enjoy the convenience of buying things online," Coon said. "But I think brick-and-mortar stores are the folks sponsoring the softball teams; they’re the ones paying taxes and providing jobs. Ultimately, online is convenient, but walking down the street is convenient, too."

Retailers are "frustrated," Coon said. One of them is Cockcroft.

"I hate that we have to collect 8.5 percent even if Amazon or Barnes & Noble is selling at full retail like we are," Cockcroft said. "It used to be that [online buyers] had to pay shipping, which was to our advantage, but now Amazon often offers free shipping. We try to do the best we can in the local community. A lot of people don’t want to wait three days for a gift, so we’re here when they need us."

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