Some of the nation’s largest retailers have joined mom-and-pop stores in pressing for online retailers to compete on a level playing field by also collecting sales taxes on all purchases.
More than a dozen states this spring have considered changes in sales-tax laws — changes supported by lawmakers seeking to close revenue gaps as well as by the year-old coalition called the Alliance for Main Street Fairness, which counts chains Target, Best Buy, Walmart, Home Depot and Sears as backers.
Internet giant Amazon Inc. has fought back by threatening to close warehouses and cut ties with affiliates in states that pass such laws. Citing a 1992 Supreme Court ruling, Amazon argues that the U.S. Constitution prohibits states from interfering in interstate commerce. Amazon currently collects sales tax in the five states where it has stores or offices: Kansas, Kentucky, New York, North Dakota and Washington.
In just the past week, the Texas governor vetoed a bill expanding the number of Internet retailers required to collect sales taxes; South Carolina lawmakers voted to give Amazon a five-year exemption from collecting sales taxes; and the California Assembly approved and sent to the Senate a bill to collect sales taxes on online transactions.
No such laws have been proposed in Iowa or Nebraska. Instead, buyers are supposed to self-report and pay taxes on their purchases, something tax officials say few taxpayers do.
Bob Batt, executive vice president at one of Nebraska’s retail giants, Nebraska Furniture Mart, said all businesses, whether they have a physical presence in a state, or not, should bear the burden of gathering sales taxes.
“We need uniform taxation,” Batt said. “Why should the people of Nebraska bear the burden of a company that’s not here? It’s un-American.”
Beth Black, who owns the Bookworm book shop in Omaha with husband Phillip, agrees that Amazon.com should have to collect the same 5.5 percent state sales tax that her operation does.
Bricks-and-mortar stores can’t do much about the convenience of shopping online 24 hours a day, but they’d like to erase the edge online retailers gain by not collecting sales tax. Nebraska Furniture Mart and Amazon might charge the same $199.99 for a camera, for example, but a customer at the Mart in Omaha ends up paying $213.99 after state and city sales taxes are added.
For years, small mom-and-pop stores have been working to get the 1992 ruling overturned, but Congress, which has the authority to pass legislation that could amend the ruling, hasn’t done so despite such bills as the Mainstreet Fairness Act, which would require retailers to collect sales taxes no matter where they’re based.
But now big box stores have joined the campaign. “The rules today don’t allow brick-and-mortar retailers to compete evenly with online retailers, and that needs to be addressed,” Walmart’s executive vice president of global e-commerce, Raul Vazquez, told the Wall Street Journal in March.
Some states have taken action into their own hands.
New York requires Amazon and other online-only retailers to collect sales taxes on all orders shipped into the state.
Other states, including Illinois, Rhode Island, North Carolina, Connecticut and Arkansas, have passed laws requiring Amazon to collect sales taxes there because of the presence of “affiliates,” which are often deal or coupon sites that direct Internet traffic to Amazon.
Seattle-based Amazon has said it plans to cut ties with affiliates in Illinois and other states with “affiliate laws.” Some 4,000 Colorado affiliates lost Amazon partnerships after a 2010 law was passed. Amazon also has filed a lawsuit contesting a New York law passed in 2008.
Nebraska Tax Commissioner Doug Ewald said Nebraska annually leaves on the table between $80 million and $120 million in uncollected sales tax revenue. Those figures are based on studies that have been done by academics and the National Conference of State Legislatures, he said.
To help stem the losses, Nebraska’s revenue department added a line to 2010 income tax forms that requires taxpayers to include how much they spent at online retailers, like Amazon.
So far, the state hasn’t had much success collecting those unpaid taxes, called “Use Tax.” Of the 366,000 personal income tax forms the state has received so far, Ewald said, only 7,058 have included entries in the use-tax line.
Those who did fill out the line have paid the state about $873,000, less than 1 percent of the total taxes that the state collects as a whole.
“Here’s the bottom line: the law in the State of Nebraska is that you and I owe the use tax if there’s no sales tax charged,” Ewald said. “But I have no hammer. It’s an honor system from that standpoint.”
Even though Amazon doesn’t charge sales tax on a large number of the sales it makes, sales tax is collected on products purchased through Amazon directly from other vendors or manufacturers.
Omaha-based Hayneedle, which has 220 online stores, charges sales tax on all orders processed with a Nebraska or Ohio shipping address because it has facilities in those two states. “Remote sellers such as Internet retailers are required to collect taxes in states where the company has a physical presence,” the company’s website says. It notes that buyers may be responsible for paying taxes to their states.
Other Midlands businesses are affected in different ways.
Bomgaars is a Sioux City, Iowa-based department store chain that sells farm gear, gardening supplies, hardware, clothes and other items at 59 stores in Iowa, Nebraska, Colorado, Minnesota, South Dakota and Wyoming. But since the family-owned operation has few online competitors, the company doesn’t see that it’s at an unfair disadvantage.
“We don’t really, in any of our markets, have problems with people selling online or selling without a sales tax,” said Torrey Wingert, Bomgaars’ vice president and chief financial officer. “There’s really nobody buying barbed wire and horse corral panels online.”
Cabela’s, the Sidney, Neb.-based outfitter that has stores in 23 states and a strong catalog and online presence, collects sales tax in states that have legal requirements and where it has retail outlets. But in other states, like Ohio, it doesn’t.
Cabela’s is actually more on Amazon’s side of the fight, but its interest in the issue has waned, said Ralph Castner, chief financial officer at Cabela’s.
Last year, Cabela’s did about $2.66 billion in total sales. “Over half” of the company’s $1 billion in catalog and Internet revenue was from online sales, Castner said, and that compares with about $1.4 billion at retail stores.
The company’s retail operations are growing faster than the catalog and online business, and Cabela’s is expanding to more states, so it’s growing less affected by the sales-tax issue.
However, Castner said he doesn’t think state-by-state laws requiring online-only companies or their third-party affiliates to collect sales tax is going to work.
“Until there’s congressional action, I don’t know how you get it done,” Castner said. “And Amazon is going to fight this hard.”
Amazon did not return a message seeking comment for this article.
The Direct Marketing Association, a New York City-based trade association representing online retailers, catalog publishers and other direct sellers, said eCommerce sites and direct mailing catalog companies shouldn’t be liable for collecting sales taxes.
“Our view is that the burden of becoming a tax collector for the states is an interference of interstate commerce, and there’s a constitutional right that states can’t force you to do that,” said Jerry Cerasale, the association’s senior vice president for government affairs.
Cerasale noted that states that have instituted independent tax-collecting laws haven’t seen a bump in revenue and have ruptured relationships with e-tailers in those states.
Creighton University economist Ernie Goss said part of the issue that has been “underplayed” is the effect on economic development.
He said that if Congress doesn’t pass federal sales tax reform — which Bezos has said is the correct way to tackle the issue — businesses like Amazon will pit states against one another, with some passing laws requiring tax collection while others offer tax benefits to companies in order to secure jobs and economic growth.
For example, when Texas lawmakers sent Amazon a bill for $269 million in uncollected sales taxes, Amazon closed an Irvine, Texas, warehouse and canceled plans to build another.
“I can see how (Amazon) would object to that and why the brick-and-mortar companies would want to get legislation passed,” Goss said. “Boy, it’s tough, you know?”
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