U.S. Senate

Sales tax ahead for online buyers?

 

Under a bill in the U.S Senate, states could force Internet retailers to collect sales taxes. Now, states can only require stores to collect sales taxes if the store has a physical presence in the state.

McClatchy News Service

The Senate is expected to vote this week on the Marketplace Fairness Act, which would give states the authority to collect sales taxes for Internet purchases.

If enacted, the measure has the potential to affect online retailing as well as the shopping habits of millions of consumers.

John Diaz of Miami said he currently buys wherever the price is best: If online vendors start charging sales tax, “it will mean that the online price may not be the best. Therefore I may head over to the nearest store and make the purchase.’’

Meanwhile, Sarah Bagby, the owner of Watermark Books & Cafe in Wichita, Kan., is closely following debate in Congress over the bill that she says would help her stay competitive with online retailers who are able to undercut her prices by not charging state or local sales taxes.

“I’m giving a 10 percent advantage off the bat to any company that doesn’t have to collect sales tax, so from that perspective it’s just a fairness issue,” Bagby said Tuesday.

Current laws allow states to collect taxes only from retailers with physical presences in their states, resulting in the loss of a projected $23 billion in sales tax revenue nationwide for 2012, according to a 2009 University of Tennessee study.

In addition to closing the tax loophole for e-commerce, the U.S. bill would affect non-electronic transactions across state lines, such as catalog sales.

Retailers would use software programs to charge the appropriate state and local sales taxes based on customers’ billing addresses.

Businesses that make less than $1 million in annual out-of-state sales would be exempt, and residents of states that have no sales taxes wouldn’t have to pay unless their states decided to opt in.

Efforts to require Internet retailers to pay Florida sales taxes like brick-and-mortar stores have repeatedly failed in the state Legislature. This year, a bill to impose an Internet sales tax is stalled in the Senate with less than two weeks before Tallahassee lawmakers adjourn.

Supporters of the federal bill hope that the legislation will cut down on the practice of “showrooming,” in which consumers go to stores to check out products they want to buy, then go home and purchase them tax-free from online retailers.

“From our vantage point, this is about a free market and allowing all retailers to compete on a level playing field,” said Jason Brewer, a spokesman for Retail Industry Leaders Association, a trade group in Arlington, Va.

Opponents warn that the legislation would create a compliance nightmare for small businesses, which would have to keep track of more than 9,000 state, local and municipal tax codes.

The bill puts small businesses at risk of being audited or forced into tax court in faraway states, said Brian Bieron, senior director of global public policy at eBay Inc., one of the legislation’s most vocal critics.

Bieron said eBay wanted lawmakers to increase the small business threshold either to $10 million in annual out-of-state sales or to 50 employees. “We think that’s a much more realistic dividing line,” he said.

In remarks on the Senate floor Tuesday, Senate Minority Leader Mitch McConnell, R-Ky., said he planned to vote against the bill, which he characterized as a new Internet tax.

“If states decide they need this revenue, they should keep in mind the tremendous burden they’ll be placing on the little guys who do so much to drive this economy,” McConnell said. “In my view, the federal government should be looking for ways to help, not hurt, these folks.”

Also speaking out against the bill was Senate Finance Chairman Max Baucus, D-Mont. Senate Majority Leader Harry Reid, D-Nev., bypassed Baucus’ committee to take the legislation directly to the Senate floor this week.

Baucus’ state is one of a handful that don’t collect any sales taxes, including Delaware, New Hampshire and Oregon. Alaska has no state sales tax, but some local governments in the state do.

The Senate voted 74 to 20 to begin debating the bill. If that level of support continues, the Senate could pass the bill as early as this week. The bill would then head to the House of Representatives.

In South Florida, opinions about the measure appear divided.

Paul Stein, a Cooper City retiree who closely watches prices, said “I will probably shop less if the new legislation passes unless the merchants are willing to reduce prices the equivalent of the tax cost.’’

Others said collecting the tax is only fair.

“Online sales tax is necessary — especially in a state that has no state income tax,’’ said Ellen Elias, a teacher who lives in Aventura. “How else will we fund our schools? I think that this is a good idea.’’

For local retailers like BrandsMartUSA, whose sales come primarily from its stores, the change will likely have little effect.

Michael Perlman, BrandsMartUSA president, remarked, “I can’t fault New York or California for wanting me to collect their taxes.’’

But for Miami-based online seller Sue Pinsley, the idea of collecting sales tax is “an absolute nightmare. I can’t even imagine how it would work.

“I might have to close my business.’’

Email Lindsay Wise at wisemcclatchydc.com. Information from The Associated Press was used in this report. Miami Herald staff writers Ina Paiva Cordle, Alphonce Shiundu and members of South Florida’s Public Insight Network contributed to this report. Sign up for the network by going to www.MiamiHerald. com/insight

Read more Public Insight Network stories from the Miami Herald

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