- The Washington Times - Thursday, November 24, 2011

It’s a scenario all too familiar to retailers: A customer walks in, asks to see a product, discusses it at length with the sales staff, and then pulls out his cellphone.

Jason Brewer, vice president of communications and advocacy for the Retail Industry Leaders Association, explains what happens next: “He uses his smartphone to take a picture of the bar code on the back of the item, and then, right in front of the sales person, he checks prices and orders the item online.”

Why? Because most online outlets don’t charge sales tax, unlike traditional bricks-and-mortar stores. Buying online, especially when it comes to jewelry, cameras, computers and other high-end electronics, can save consumers a hefty chunk of change. But the costs to traditional retailers, not to mention state and local governments, are mounting.

“Not only does the retailer lose the sale, but the sales staff just lost 30 minutes telling the customer about the product,” Mr. Brewer said.

It’s infuriating to store owners, but after years of griping about the lack of fairness, this may well be the last holiday shopping season when bricks-and-mortar stores operate under a sales-tax handicap. A bipartisan consensus appears to be forming in Congress in favor of legislation that would close the tax loophole.

Such bills have come and gone for years, but the political winds took a turn this year, thanks largely to the efforts of lawmakers in California. The state waged a high-stakes duel with Amazon.com and won after the online giant agreed in September for the first time to comply with a state sales tax instead of fighting it in the courts or at the polls.

Amazon.com had vowed to spend tens of millions of dollars on a ballot referendum to overturn the law, which the state countered with a threat to pass the bill as an “urgency measure” that voters could not repeal. Amazon.com ultimately blinked and signed off on a deal in which remote sellers agree to pay the California sales tax after a one-year grace period unless Congress approves national rules.

The California move injected fresh enthusiasm into federal efforts to level the sales-tax playing field. Within weeks, the House and Senate had introduced bipartisan legislation giving states the option of collecting sales taxes from online sellers.

“What lit the wick was California,” said Danny Diaz, a spokesman for the Alliance for Main Street Fairness. “Amazon was sustaining an unbelievable amount of damage to their brand. I think Amazon understands that a [federal] bill is going to pass, and they can be part of the conversation or not.”

Indeed, Amazon.com has come out in favor of the Senate bill, sponsored by Lamar Alexander, Tennessee Republican, Michael B. Enzi, Wyoming Republican, and Richard J. Durbin, Illinois Democrat.

Republicans traditionally have opposed the online sales tax as a new “Internet tax,” but their resistance is crumbling. The bill was introduced Nov. 9 with five Democratic and five Republican sponsors.

“Amazon strongly supports enactment of the Enzi-Durbin-Alexander bill and will work with Congress, retailers and the states to get this bipartisan legislation passed,” said Paul Misener, Amazon.com vice president of global public policy.

The House version, the Marketplace Fairness Act, also has Republican support. Both bills include an exemption from the online sales-tax requirement for businesses with less than $500,000 in remote sales.

Opponents of the online sales tax said the proposals would harm remote sellers and noted that previous bills offered $5 million exemptions.

“Online sales-tax supporters are promising a Thanksgiving feast, but all they’ll deliver are cold leftovers,” Steve DelBianco, executive director of NetChoice, said in a statement. “Small online retailers are right to fear the costs and compliance burdens of this proposal.”

The biggest objection to the online sales tax has been its complexity. The 7,500 tax jurisdictions, opponents say, would present an unreasonable burden for mom-and-pop sellers to figure out the different tax rates for purchases.

States have attempted to simplify and harmonize the system with the Streamlined Sales and Use Tax Agreement. So far, 24 states have signed onto the pact, and the federal bills would give sellers 90 days to collect and remit sales taxes in complying states.

A half-dozen states preceded California in passing online sales taxes, but Amazon.com called the laws unconstitutional. A 1992 Supreme Court case ruled that sellers without a physical presence in a state could not be forced to pay sales taxes.

Critics point out that the ruling was issued before Internet shopping became increasingly common. With their growth, large retailers such as Amazon.com are expanding their physical presence.

“The irony is, they’re becoming more like the brick-and-mortars than they realize,” Mr. Brewer said.

As a result, retailers say, the sales-tax loophole’s days are numbered. “We really expect this will be the last Christmas where online retailers aren’t collecting the sales tax,” Mr. Diaz said.

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