LINCOLN — From behind the counter of his jewelry store, Tom Wright witnesses a frustrating spectacle more and more these days.
A couple come in looking for an engagement ring or anniversary present.
They check out a few options, and seem to have settled on a choice.
Then they walk out the door.
Chances are, he said, they went home, turned on a computer and bought the item over the Internet, saving the 7 percent sales tax charged by the state and the City of Lincoln.
His business becomes a showroom for the Internet.
“We hate it and we fight it,” said Wright, who has operated Wright's Jewelers with his wife for 34 years. “There is a growing amount of people who do everything online.”
Wright is among the “brick-and-mortar” business owners who have been asking lawmakers for years to create a level playing field with their online and catalog competitors and make them charge sales taxes on their goods, as he does.
Arguments such as Wright's are beginning to resonate in Washington. After years of going nowhere, three proposals requiring Internet taxes are getting some traction in Congress.
Still, not everyone is convinced, with some conservative groups saying the effort is no different from a tax increase. They see the effort as a new tax bill coming at a particularly bad time, when the economy is still hurting.
Legally, people who purchase goods from an out-of-state website are supposed to pay the “use” taxes locally. But few do, and an attempt to get Nebraskans to do it voluntarily has met with little success.
Two years ago the state put a new line on state income tax forms asking taxpayers to voluntarily disclose their Internet purchases and pay the sales tax. A little more than 1 percent of taxpayers did that this year, an increase from the less than 1 percent who did it in 2011.
The state tax commissioner joked that those in the 1 percent probably all work for him, because disclosing and paying such taxes is a condition of employment.
“We put stuff out there to try and educate people,” said State Tax Commissioner Doug Ewald. “But we see the comments: ‘Until they get some way to catch me, I'm not going to do it.' ”
But that may soon change. Congress has held hearings in recent weeks on two of the online sales tax bills.
Iowa Gov. Terry Branstad recently joined a growing number of Republican governors who support efforts to collect taxes on Internet purchases. A nationwide organization of state lawmakers, the National Conference of State Legislatures, came out in favor of the idea last week.
Though some members of Nebraska's congressional delegation want more information about the proposal, U.S. Sen. Ben Nelson of Nebraska is among the co-sponsors of one of the measures, the Marketplace Fairness Act.
Even Amazon, the huge Internet retailer that had led the fight against such tax collection for years, announced this spring that it now supports the idea.
“It definitely has more momentum than it ever has had in the past. It's not a matter of ‘if' but ‘when' something will pass,” said Joe Rinzel, a Washington, D.C., lobbyist with the Retail Industry Leaders Association.
If something does pass, it will have consequences:
» Online and catalog retailers would be required to figure and assess the local sales taxes due, which would boost the price to the purchaser.
» A chunk of new revenue from such sales would be forwarded to states — an estimated $23 billion a year nationwide — including $118 million in new tax revenue for Nebraska and $181 million in Iowa. That could allow reductions of other taxes, or, for example, the paving of new highways.
It is a relevant subject in Nebraska, which has several major online retailers, such as Cabela's, Omaha Steaks and Oriental Trading.
U.S. Rep. Adrian Smith and U.S. Sen. Mike Johanns, both Nebraska Republicans, indicated they were undecided on the subject and wanted more information.
“I have serious hesitations about this,” said Smith, who sees it as “a money grab” by states seeking more tax revenue.
But with retail purchases made online now at about 7 percent of sales and growing, this area of tax law is getting more and more attention.
Currently the law of the land is based on U.S. Supreme Court rulings, from 1967 and 1992, that state that unless a catalog or Internet retailer has a physical presence in a state, it has no obligation to collect sales taxes on purchases made from that state.
So if a Cabela's or Amazon doesn't have a retail store, warehouse or sales force in a state, the company doesn't have to collect sales taxes on purchases made from there. A few companies voluntarily pay the sales tax, but it's a relatively small number, resulting in about $12 million in revenue in Nebraska.
And, currently, states don't have a means of tracking who is buying stuff over the Internet, or a “hammer” to force them to pay taxes, said Ewald, the Nebraska tax commissioner.
Most observers said it's something only Congress can resolve.
And now the matter has momentum. Why?
For one, technology has improved, and there's less-costly computer software that will allow retailers to figure out the taxes due from each state.
States, because of the recent recession, are also looking for ways to pay for highway improvements, universities and other government services without raising taxes.
“It's eroding our tax base as we start purchasing more and more online. That puts pressure on other sources of revenue and the amount of services you can provide,” said Renee Fry of the Open Sky Policy Institute, a Lincoln-based government think tank that supports collecting the Internet taxes.
It's decent money. In Nebraska, $118 million in new sales taxes would be like raising sales taxes across the state by an additional half cent. That new money would be nearly enough to cover the costs of the state's correctional facilities.
But the big issue has been tax fairness.
Local brick-and-mortar merchants and even large chain stores such as Walmart must collect local and state sales taxes, while Internet merchants do not.
“It's a huge disadvantage,” said Jim Otto of the Nebraska Retail Federation.
And, Otto said, it has an impact on local communities, because local merchants create local jobs, pay other taxes and finance community projects.
Branstad, in a recent letter to Iowa's congressional delegation, said it was a matter of fairness and “leveling the playing field” between Main Street and e-commerce.
Nelson said it's a loophole that needs to be closed.
“Unfortunately, much of our tax code was written long before the Internet existed,” he said, calling the current tax situation “an odd technicality ... that just isn't fair.”
Cabela's, which has retail outlets in 23 states, is not fighting the idea. It is already assessing sales taxes in each of those states, and is expanding into more states.
“We're a little bit on the sidelines on this,” said Ralph Castner, the company's executive vice president and chief financial officer. “We're going to have a store in so many states, it won't matter.”
Main Street retailers like Wright said it's already tough to compete with the convenience of Internet shopping. It's easy, for instance, for people to shop in their pajamas in the middle of the night.
But on price, brick-and-mortar retailers ought to be given a chance to compete, they say.
“If I have to collect taxes from my customer, why shouldn't sellers on the Internet collect taxes from theirs?” Wright said.
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