Nov. 16 (Bloomberg) -- Legislation in the U.S. Senate that would require Internet retailers to collect sales tax is gaining support from an unlikely ally: Amazon.com Inc.
Seattle-based Amazon, the biggest online seller, for years has battled state efforts to impose such taxes. Now, it is backing a bipartisan measure to create a federal standard for states to collect sales taxes on Internet purchases, avoiding a patchwork of local laws.
Supporters say the move would give states, which are facing budget gaps compounded by anticipated cuts in federal assistance, a pot of revenue and end an unfair advantage for online retailers.
“With states looking for increased revenue, Amazon felt it was inevitably going to be forced to collect the tax,” Ben Schachter, an analyst at Macquarie Capital in New York, said in an e-mail. “They decided to more aggressively lobby for a solution that would be most beneficial for themselves within the context of having to collect sales taxes.”
The measure is exposing a rift among online retailers. San Jose, California-based EBay Inc., the largest online marketplace, and the Electronic Retailing Association, a trade group based in Arlington, Virginia, say it would hurt small businesses by adding bookkeeping burdens.
The bipartisan legislation would end a system in which e-commerce sites haven’t been compelled to collect state and local taxes if they don’t have a physical presence in the state. The new requirements also would apply to out-of-state catalog purchases. Brick-and-mortar retailers such as Target Corp. and Home Depot Inc. must charge customers sales tax.
A 1992 U.S. Supreme Court decision exempted businesses from collecting the levies unless they had a “nexus” to the state, such as a store or warehouse. The court said it would be too complicated for retailers to plod through 45 state and more than 7,500 local tax systems.
Store and mall retailers have been pushing for the tax for years, with efforts stalled in Congress over the past decade. Three bills have been introduced in recent months to give states a way to collect the tax. Customers are now supposed to report the purchases and pay a “use tax.”
Compliance is low, with a report from California’s tax authority earlier this year finding fewer than 1 percent of income tax returns reported any use tax.
Amazon, which has backed a federal measure that simplifies the process, has expansion plans that would establish physical locations in more states, Schachter said.
Uncollected Sales Taxes
Next year states will forgo about $23.3 billion in uncollected taxes from out-of-state online and catalog sales, according to the National Conference of State Legislatures. That uncollected revenue hurts states especially, as many face budget gaps.
“We have a system where everyone doesn’t play by the same set of rules,” said Katherine Lugar, an executive vice president at the Retail Industry Leaders Association in Arlington, Virginia, which supports the legislation.
The absence of a federal law giving states authority to collect the sales taxes allows the U.S. government to pick winners and losers, and Amazon’s support of the legislation is crucial for efforts at balance on this issue, she said.
“We now have one of the largest online retailers saying this needs to happen federally,” she said. “It’s the patchwork of state laws that is really driving them to want and support a federal solution.”
Resisting State Efforts
Amazon has resisted efforts by New York, Rhode Island, Texas, Illinois and North Carolina to require all retailers to collect sales taxes. It soon must start collecting the tax in California under a compromise agreement.
In September, California Governor Jerry Brown signed a bill that gives Amazon a one-year reprieve from collecting the tax.
Amazon agreed to drop efforts to repeal the tax measure through a referendum. The company and the state agreed to work for a national standard for online sales tax collection. Amazon will begin turning over taxes on California transactions in September 2012 if a national standard isn’t in place.
Amazon “strongly supports” the federal solution, the company said in a statement.
It “will work with Congress, retailers and the states to get this bipartisan legislation passed,” Paul Misener, Amazon’s vice president of global public policy, said in the Nov. 9 statement.
Other online retailers, such as EBay, said the move would burden small businesses that increasingly use the Internet to compete with larger rivals.
‘Better For Them’
Amazon realized that, if it is has to collect the tax as it expands in more states, “it’s better for them to require all of their competitors to collect,” said Brian Bieron, EBay’s senior director of federal government relations.
The legislation would mean “all kinds of cost issues that aren’t good” for small retailers, he said.
Small businesses comprise the majority of EBay sellers and any law would need appropriate exemptions to protect them, the company said.
The legislation isn’t a new tax and instead gives states a means to collect a levy that is already owed by the buyer, said Senator Lamar Alexander, a Tennessee Republican. He is a co-sponsor of the measure with four Republicans and five Democrats.
The anti-tax group Americans for Tax Reform in Washington hasn’t said whether the legislation violates a no-new-taxes pledge that many Republicans have signed, said John Kartch, a spokesman.
The bill would streamline state and local jurisdictions and give states two ways to begin collecting sales tax, either by altering their tax codes and joining an interstate agreement or by adopting minimum simplification requirements.
Online retailers should start getting ready for the change, Alexander said on the Senate floor last week when the legislation was introduced.
“I’ve watched Congress long enough to say this is going to happen,” he said.
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