On July 24, the U.S. House of Representatives Judiciary Committee will hold a hearing on a bill to let states collect sales tax from out-of-state merchants that sell to their residents. If it is passed, online retailers, which now mostly don’t collect sales tax, will lose a price advantage that has helped them take business from brick-and-mortar stores.
Wal-Mart, which has been boosting political contributions and staffing up its Washington office, is one of the prime movers behind the bill, said Congressman Steve Womack, an Arkansas Republican who authored the proposed legislation.
“This is Wal-Mart’s top issue, if not one of their top issues,” Womack said in a phone interview. “Wal-Mart (WMT) is important to me because they are headquartered in my district.”
It’s easy to see why Wal-Mart is determined to force online merchants to charge sales tax. Last year, Seattle-based Amazon’s sales grew 41 percent to $48.1 billion. Bentonville, Arkansas- based Wal-Mart increased U.S. sales at its namesake stores 1.5 percent to $264.2 billion. Five years ago, only about a quarter of Wal-Mart customers shopped at Amazon, according to Kantar Retail, a London-based research firm. Now half say they do, Kantar says.
To improve its Web sales operations, Wal-Mart has been acquiring social-media companies and technology firms in Silicon Valley. Wal-Mart generates less than 2 percent of its revenue online, according to a Kantar estimate.
In the meantime, Wal-Mart has been stepping up its Washington activities. The chain spent $7.8 million on lobbying efforts in 2011, the most in its history, according to OpenSecrets.org, a website founded by the Center for Responsive Politics, a watchdog group in Washington.
Before the mid-2000s, Wal-Mart had a limited presence in the nation’s capital. The Washington office now has 15 people because the company “wants to be involved in issues that are important to our customers and our associates,” Brooke Buchanan, a spokeswoman, said in a telephone interview.
Founder Walton preferred to steer clear of politics and focus on opening stores, according to Rogan Kersh, a political science professor at Wake Forest University in Winston-Salem, North Carolina, who studies corporate lobbying. As recently as 2005, Wal-Mart spent less than $2 million on lobbying efforts, according to OpenSecrets.
“Wal-Mart had this attitude that they didn’t need to worry about Washington and politics,” Kersh said in a phone interview. “They started lobbying on tax issues some years ago. Once you start down the path, it’s not something you retrench on. It just keeps expanding.”
Womack, whose district includes Bentonville, said he talks regularly with Wal-Mart Chief Executive Officer Mike Duke, Chief Finance Officer Charles Holley and members of the Walton family. Sam Walton’s son, Rob Walton, is chairman of the board.
In 2011 and 2012, Womack was Wal-Mart’s largest recipient of political contributions, receiving $30,950. The retailer gave presumed Republican presidential candidate Mitt Romney $21,500; President Barack Obama got $20,119, according to OpenSecrets. Representative Jackie Speier, a California Democrat who signed onto the original bill, received $7,500 over the past two years from Wal-Mart, according to OpenSecrets.
Womack makes no apologies for sponsoring a bill that would help Wal-Mart. “If something affects Wal-Mart, it affects me and it affects jobs in my district,” he said.
The online tax bill took shape after a conversation with top Wal-Mart executives in January of 2011, Womack said. He asked what issues were important to them. The response: sealing up the loophole that allows online retailers to sell goods without a sales tax.
Beyond Wal-Mart, Womack said he also wants to provide succor to small, independent retailers in northwest Arkansas. One jewelry shop in Fayetteville, Arkansas, complained to him that with the state’s 9 percent sales tax, a buyer can visit a site like bluenile.com and buy a $10,000 piece of jewelry tax- free and save nearly $1,000.
“Right now, an online seller has an unfair advantage,” Womack said. “How many small-business obituaries do we have to read before we do something.”
In fact, online sales are supposed to be taxed -- it’s overly complicated for all but the most conscientious shoppers to pay up. When someone buys from Amazon or another website, they are quoted the sales tax. Consumers are then supposed to contact their individual state and pay it. Womack said he bought coffee from Amazon for $72. To pay the $6.54 in sales tax, he had to download a form, fill it out and write a check to the Arkansas Department of Finance and Administration.
If the bill is passed, every state will have to provide online retailers with software that calculates and helps collect the sales tax from buyers. With 47 members of Congress signed on and many states clamoring for a crack at the estimated $23 billion in tax revenue that is missing on tax-free online sales, the momentum is on Wal-Mart’s side.
A similar bill in the Senate has strong Democratic support and is starting to get some traction among Republicans. Several Republican leaders, including New Jersey Governor Chris Christie, Indiana Governor Mitch Daniels, and Texas Governor Rick Perry have signed on to the concept, according to a report from Bloomberg BNA, a division of Bloomberg that tracks tax developments. In the same report, Senator Lamar Alexander, a Tennessee Republican, said he hopes the House measure passes this year and said the Senate bill is moving through the legislative process.
Wal-Mart management sees Womack’s tax bill as being about fairness, Daniel Morales, a company spokesman, said in a phone interview. Womack said Amazon supports his bill because it may help set up one standardized way to collect and pay sales tax.
Paul Misener, Amazon’s vice president of global public policy, told the House Judiciary Committee at a hearing in November that the company supports the sales tax if it is approved by the federal government.
While online retailers will probably lose some hard-core bargain hunters if the bill passes, their sales will keep growing, said Bryan Gildenberg, a Kantar analyst.
“Any retailers will tell you that that buyer is their least profitable,” he said.
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