Cyber sales tax has winners and losers in Northwest

Dec 3, 2011

WASHINGTON, D.C. – This holiday shopping season, buying online is bigger than ever. That’s got Congress taking a new look at an old fight: Internet sales tax.

One Oregon lawmaker – and Washington's state online giant – are front-and-center in the debate.

A growing number of brick-and-mortar retailers complain that online sellers have an unfair advantage. To see why ... just do some online shopping.

It’s not just that you can do this in your jammy-pants and slippers. If you buy online from a retailer that doesn’t have a physical presence in your state, you’re probably not going to pay sales tax. Note the “probably.”

The 'honor system'

In most states, the consumer is supposed to calculate and pay an equivalent “use” tax – generally 6.5 percent in Washington, 6 percent in Idaho. Oregon is the exception, because the state has no sales tax to begin with.

Thing is, most shoppers never follow through. Washington and Idaho can’t be bothered to go after a few bucks here and there. And as of now, states can’t compel online retailers to collect the tax. Meanwhile, ‘e-tail’ commerce is claiming an ever-growing share of the action.

“What is it up to 36% now? 38% over the weekend?" asked Michigan Democrat John Conyers at a recent House Judiciary hearing on state taxation of Internet commerce.

Struggling retailers

Congress is renewing its focus on the issue, in response to pressure coming from multiple constituencies. In this economy, states are motivated to go after the hundreds of millions of dollars in lost revenue. Lawmakers, meanwhile, have to answer to the Main Street shopkeepers – like Michigan music-store owner Dan Marshall.

“Every hour of every day, our sales associates answer questions, provide demos etc … and then they’re confronted with ‘here’s the best price I can get on the Internet – can you match it?’ ” Marshall said.

Factor in the extra 6 percent, he says, and instead of selling Gibson guitars to aspiring rock stars, Marshall finds himself running a display case for his online competitors.

Pending bills in Congress

This is where Congress comes in. Several bills are pending that would allow states to require companies to collect the tax.

At one hearing, some of the biggest names in online retail – Amazon and eBay – offered sharply differing views. On one side is Seattle-based Amazon. VP of world-wide public policy Paul Misener, told lawmakers companies – including his – should have to collect the tax.

“Congress should help address the state’s budget shortfalls without spending federal funds by authorizing states to require collection of the billions of revenue dollars already owed,” Misener said.

Misener’s making that case, even though Amazon has done well as one of those ‘e-tailers’ that don’t collect sales tax in most states. Now Amazon is eager to cast the sales tax net over all but the smallest online retailers. That met with skepticism and derision from eBay executive Tod Cohen. He wants a higher number of online-only retailers to remain free of the sales tax requirement.

“Without a small business exemption, remote sales taxes will tip the scales further against small retailers and benefit the largest retailers with the most facilities. That is why retailers with national store or distribution networks support changing current law,” Cohen said.

'Big mistake'

One key voice in this debate is that of Senator Ron Wyden. The Oregon Democrat has long opposed efforts by both parties in Congress to increase states’ taxing authority in the cyber-realm.

“I think it would be a big mistake to say our small companies should be subject to taxation and subject to thousands of taxing jurisdictions,” Wyden said.

The latest Internet sales tax bill is in the Senate Finance Committee. Wyden is a member. So is Senator Maria Cantwell. The Washington Democrat also comes from the online business world, but she has yet to stake out a position in the Internet sales tax debate.