Online retailers are coming under fire from Washington and state governments for not collecting sales tax from customers who purchase goods and services through websites such as Amazon and eBay.
The tax itself is not new. The only difference is that online retailers could soon be required to collect it — just like their traditional bricks-and-mortar peers — instead of trusting customers to pay it on their own to the state, which is a requirement few heed.
The movement to step up the collection of online sales tax is gaining momentum from traditional retail stores that want to level the playing field and, more recently, state governments that are desperate for money.
In the Senate, the Marketplace Fairness Act would allow states to require online retailers to collect sales tax. In the House, the Marketplace Equity Act, which has a hearing next week, would essentially do the same thing.
Both have growing bipartisan support.
Even before Congress decides whether to give states this power, a growing number of governors are striking deals with online retailers to collect sales tax.
“You have got to make sure a sale is a sale, whether it takes place downtown or online,” said Rep. Steve Womack, an Arkansas Republican who is sponsoring the House bill. “If you’re going to have a tax assessed for anything, it’s bad policy to make it ‘optional.’ Anytime we have a system where you’re basically on the honor code to report taxes, that cannot be healthy.”
The problem is most online shoppers don’t realize they are required to pay sales tax.
It’s a confusing issue that has baffled Mr. Womack, who said he hasn’t always paid online sales tax because he didn’t realize it was necessary.
“I have not always done that because I didn’t understand it as I do now,” he said. “But I promise you this: I do now because I’m a member of Congress. I lead by example.”
By not collecting the required sales tax, Internet retailers’ goods and services often appear cheaper.
“It’s becoming a very, very unfair tax,” said Rachelle Bernstein, vice president and tax counsel for the National Retail Federation, which represents both online and traditional retailers. “We think it’s time to eliminate that disadvantage.”
But many of the top Internet retailers are also traditional retailers, such as Staples and Wal-Mart, ranked No. 2 and No. 4, respectively, in online sales.
“The vast majority of the top Internet sellers are brick-and-mortar stores,” said Bill McClellan, spokesman for the Electronic Retailing Association. “If they were at any disadvantage online, they would not be doing so well.
“They’re saying, ‘Well, it’s unfair, and we’re at a price disadvantage and we’re losing all these sales.’ Well, if you’re losing all those sales and you can’t compete, how are you one of the top online retailers?”
But it’s not just big merchants complaining about the disadvantage. Ms. Bernstein recalled the story of a small jeweler who spent hours educating a man on the right engagement ring to buy, only to have the customer go online to buy it for $600 less without tax.
“I’ve seen people say the e-tailers are all small businesses and they’re just trying to get started on the Internet against large brick-and-mortar stores, so they need a competitive advantage. But this was a small brick-and-mortar guy who couldn’t compete with the small e-tailer. So that’s not fair.”
Even consumer groups recognize there is a problem.
“Intelligent consumers understand that there is no free lunch,” said Mark Cooper, director of research at Consumer Federation of America. “Consumers pay sales taxes all the time, and tax avoidance is not what the Internet should be about.”
This also comes at a time when many state governments are searching for new ways to raise money to cover their budget gaps. Studies show that collecting online sales tax would generate about $23 billion in revenue. It has caused many Republicans, who generally oppose new and higher taxes, to reconsider the issue. A year ago, most Republicans would have refused such legislation, but now, not so much.
New Jersey Gov. Chris Christie recently struck a deal with Amazon to collect online sales tax for his state. Now, congressional Republicans are following his lead.
“Conservatives are beginning to understand a little bit more about this issue,” Mr. Womack said. “I could give you many reasons why I think this is good conservative legislation. I think there is a growing amount of support for it.”
Republicans are framing it as a states’ rights issue.
“What’s important to note is that this legislation is a states’ rights bill,” a spokesman from the office of Michael B. Enzi, a senator from Wyoming who is sponsoring the bill, wrote in an email. “It does not force states to collect online sales tax; it just gives them the ability to do so if they choose.”
Republicans justify their stance by pointing out that they technically aren’t raising taxes or creating new ones — they are simply better enforcing an existing tax.
“It’s not a tax increase,” Mr. Womack said. “It’s already lawfully due and payable.”
But he added, “I totally understand how [online shoppers] feel like this is raising their taxes.”
Paul McWilliams, editor of New Jersey-based Next Inning Technology Research, said state governments have only themselves to blame. As they spend more, they raise taxes to cover their expenses, leading consumers to look online for ways around it.
“The states have turned people into sales tax criminals,” he said. “They’ve driven shoppers outside of their state boundaries by continually raising the sales tax as their budgets get out of control.”