States edge closer to collecting sales tax from online retailers
Furniture Today Staff -- Casual Living, February 20, 2012
Brick and mortar furniture stores have long decried a perceived competitive advantage of online retailers because many sites don't collect state and local sales taxes.
That could change before the year ends.
S. 1832, also known as the Marketplace Fairness Act, was introduced in Congress last year and is now in committee. It would authorize states to collect sales tax from remote sellers like Internet retailers.
While congressional legislative efforts to force Internet retailers to collect sales taxes are nothing new, what's different this time is that some big Internet retailers like Amazon have buckled in recent months and have agreed with states including Indiana and California to start collecting the taxes at a future date.
S. 1832 would begin requiring collection 90 days after legislation is passed. The bill exempts small sellers - businesses with less than $500,000 in remote sales. Through the bill, states can join the Streamlined Sales and Use Tax Agreement or adopt a set of simplified guidelines to collect sales taxes.
It aims to collect what a University of Tennessee study estimates is $11.3 billion in lost revenue from e-commerce sales taxes that states and localities won't collect this year.
Furniture industry retail group the National Home Furnishings Assn. is backing the proposed bill, said Steve DeHaan, executive vice president.
"NHFA is making a full court press to secure passage of legislation that would allow states to require out of state sellers to collect sales/use taxes," he said. "NHFA has been involved in S.1832, we have participated in the Streamlined Sales and Use Tax Agreement process, and we have been involved with the Main Street Fairness issues (often called the Amazon Tax) with past congressional bills relative to charging and collecting interstate sales taxes. NHFA has been pursuing this issue since the mid 1990s. It has been and continues to be one of our top congressional priorities."
Industry analyst Jerry Epperson of Mann, Armistead & Epperson said that online retailers were once unified against collecting state sales taxes. But as the Internet has evolved from its wild frontier beginnings into a solid and growing retail channel, some of those retailers are now viewing it as inevitable.
"I think most people recognized this was going to happen," Epperson said.
Two rules govern the current online retail approach to sales tax.
In 1967, the Supreme Court ruled in National Bellas Hess v. Department of Revenue that mail order resellers needed to have physical contact with a state - other than mail - to be required to collect state sales tax.
In Quill Corp. v. North Dakota, the Supreme Court in 1992 ruled that a business must have a physical presence in a state to collect, but said Congress could "overturn" the decision by legislating the parameters of state taxation.
While S. 1832 wouldn't overturn the Supreme Court rulings, it would allow Congress to authorize collection of sales taxes by states without retailers needing a physical presence, said Ronald Alt, a senior research associate with the Federation of Tax Administrators.
A number of companies, including Wal-Mart, Barnes & Noble and Apple, already collect sales taxes from online sales. But those companies have a physical presence in states, he said.
Alt said that collecting taxes "is doable, it's not a technical or logistical issue. It's sort of a cost pricing issue."
He said the Quill ruling dictated that issues affecting interstate commerce can only be decided by Congress.
He added that states already have laws on the books requiring that residents pay sales or use taxes on goods they buy out of state. "It's just not collected," he said. Buyers could voluntarily remit sales tax to the state for their online purchases, but few do.
Furniture/Today contacted several of the most recognized online home furnishings retail sites. None agreed to comment on the record for this story.
For a longer version of this story, see the Feb. 20 print issue of Furniture/Today.