Legally, consumers who purchase from online sites are supposed to pay those sales tax debts themselves. Theyre also supposed to report racetrack winnings along with any coins they find on the street. All of the above are equally likely.
The states argue that its legally easier for them to go after the Web sites. And therein lies the implicit threat and the only stick the states hold: They are making a not-so-subtle threat to start suing e-commerce sites unless they start collecting state sales tax.
The SSUTA group set Oct. 1 as a target date for states to start enforcing—OK, threatening.
The legal standing that the states would have to force e-commerce sites to comply is weak at best, but its the classic lawsuit threat: "We may lose, but youll be forced to spend tons of money for lawyers and appearing in courtrooms and giving depositions. And, heck, theres always a chance that well win, so you might as well do what we want now and not take any chances."
The threat that pure-play e-commerce sites will be forced to pay is unrealistic. The legal action is focused more on multi-channel sites whose corporate parents probably have something somewhere in most states and, if they dont, theyre probably only one acquisition away from doing so. The simple act of moving a call center or hiring a different call center outsourcing company could suddenly give a company a presence—legally "nexus"—in an additional state.
Consider Lands End. It was fine, but it was then purchased by Sears (which then merged with Kmart). All of a sudden, where doesnt the Lands End family have some physical location?
The SSUTAs threats will only work on larger companies that arguably have some kind of presence in most states and would therefore concede to having to charge sales tax.
For them, SSUTA is offering an amnesty program. That program pretty much says that if the site starts charging sales tax right away, the state will agree to not sue them for back payments. If not, everything stays on the table in the "imminent threat" category.
"They really dont have the leverage to threaten the online retailers unless (the retailers) are benefiting from the road systems, the police, etc.," said Dick Eppleman, the director of government markets for Vertex, a tax software vendor. "I dont think theres an incentive to collect" unless the company has that physical presence in that state.
Eppleman points out that SSUTA is doing some good work on cleaning up ambiguous and conflicting issues with at-time-contradictory state sales tax rules.
One frequently cited example is candy versus food. Many states will not charge sales tax on food but will for candy. Wisconsin officials were involved in a compromise that dictated that anything with flour in it is food, not candy. (Question: How many hours will it take Hersheys to start adding in microscopic dots of starch to chocolate bars to avoid the tax?)
The 13 states that are now working with SSUTA are Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota and West Virginia. Six that will be added in the next few years are Arkansas, Nevada, Ohio, Tennessee, Utah and Wyoming.
In short, the Web has little impact on any of this. The only retailers who should consider the amnesty program are ones who honestly believe they have operations in that state. And if they do, they should have been charging sales tax for years. For those who dont, theres no need to make any changes.
There is a true threat hanging over their e-commerce heads, though. Some states have been lobbying Congress to change the law to force e-commerce sites to charge the same sales tax as everyone else.
Thats a very interesting situation. Congress would be able to deliver literally billions of dollars in additional revenue to the states, which the states could use to pay for various federally mandated programs. Its unusual for Congress to be able to help states get money directly, so this would be a nice twist.
Should they do it? My only concern is fairness. If its universal and it hits all e-commerce sites at the same time and in the same way, it wouldnt hurt any one site more than any other. And I cant imagine consumers and businesses cutting back online purchases because of a universal single-digit percentage increase.
But such a move would take quite some time to push through, assuming the votes can be found at all.
Until then, though, e-commerce sites can greet those 18 states ringing their doorbells with a friendly, "Sorry, kids, but I wont collect your taxes for today. But before you start toilet-papering my site, I have bags of 20 percent off coupons good for today only. And if you register right now, Ill give you all a brand new cookie."
Evan Schuman is retail editor for Ziff Davis Internets Enterprise Edit group. He has tracked high-tech issues since 1987, has been opinionated long before that and doesnt plan to stop anytime soon. He can be reached at Evan_Schuman@ziffdavis.com.