States Score in Tax Battle

Due to the increasingly heated debate over expanded Internet sales taxes, e-commerce merchants are no longer one big, happy family.

Due to the increasingly heated debate over expanded Internet sales taxes, e-commerce merchants are no longer one big, happy family.

Many of the largest online merchants now favor allowing states to collect sales taxes on goods from retailers that have no physical presence—no stores or warehouses—in the state. Thats because many of those online merchants have locations in almost all the states.

Over the past few weeks, cash-strapped state governments successfully lobbied members of Congress for the introduction of a bill that would authorize states to require retailers, regardless of their location, to collect sales taxes. Industry observers expect a Senate version of the legislation to be introduced as early as this week. The states have the backing of many federal legislators, as well as many of the biggest stores in the country.

Office supply merchant Staples Inc. has stores in 45 states. The company is pressing for federal legislation to end what it considers an unfair system, in which pure Internet retailers (those without stores) have an edge. Arguing that consumers usually owe sales tax when they buy goods online from a remote retailer even if the retailer isnt required to collect it, Jack Vanwoerkom, general counsel for Staples, in Framingham, Mass., told Congress last week that states are losing revenue.

The states have been working on a simplified tax system, and 40 have signed on to the Streamlined Sales and Use Tax Agreement. The agreement establishes one tax rate for each state and one rate for each ZIP code, as well as uniform audit procedures and other methods to simplify tax collection.

Joining Staples in the battle for a new federal law to make sales-tax collection on remote purchases mandatory are most of the countrys largest retailers.

The National Retail Federation is urging Congress to pass the legislation this year. One reason is that new technology lets merchants know which goods are taxed and at which rate, regardless of where the sale is completed, Maureen Riehl, vice president of the State and Government Relations Counsel at the NRF, in Washington, told federal lawmakers last week.

For merchants that conduct all or most sales online, the Streamlined Sales and Use Tax Agreement is seen as creating new burdens that will chill the growth of e-commerce. The Direct Marketing Association, which is fighting the agreement and the pending federal legislation, maintains they would favor foreign companies.

An Internet retailer, or any direct marketer, would have to file dozens of sales-tax returns monthly and could be audited any time by 46 agencies, said George Isaacson, tax counsel for the Direct Marketing Association, in Lewiston, Maine.