Buying stuff online tax free could soon be a thing of the past, but several Wichita-based online retailers fret about their cost to make that happen.
The U.S. Senate voted 63-30 Thursday to advance a bill that would allow state and local governments to collect sales taxes on all Internet purchases made by their residents. The sales tax charge would be based on where the shopper receives the product, typically at home or work..
The final Senate vote will take place May 6, and opponents in the Senate acknowledged they have a steep hill to climb to defeat the bill.
If approved by the Senate, it will go to the U.S. House, where many Republicans consider it a tax increase. President Obama supports the bill.
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Under current law, Kansas residents owe sales tax on online purchases, but whether they pay them is complicated.
Currently, states can require stores to collect sales taxes only if the company has a physical presence in the state, such as Amazon’s warehouse in Coffeyville. For purchases from online companies with no Kansas presence the state relies on residents to self-report what they owe on their state tax return, but few do.
The lost tax revenue has grown more significant as online sales have grown. The National Conference of State Legislatures estimates that states lost $23 billion last year because they couldn’t collect taxes on out-of-state sales.
The bill would change that system so that online retailers collect the appropriate sales tax at the time of purchase, just as brick-and-mortar retailers do.
States would be required to provide free software to online retailers that would allow them to figure out the correct tax rate for every customer anywhere in the United States. States must also establish a single entity to receive Internet sales tax revenue, so retailers don’t have to send them to individual counties or cities.
Companies with sales of less than $1 million a year would be exempt from the requirement.
Several local online retailers say they don’t disagree with the charge that the present system isn’t fair to brick-and-mortar stores, but they say the complexity of managing tax collections could be unfair to them if it’s not done right.
David Sasson, CEO of Overstockart.com, which sells hand-painted copies of well-known paintings, has followed the issue closely.
“My feeling is that it won’t affect our business too much as long as it is done in a way that is easy to manage,” Sasson said. “If it creates a whole lot of additional costs, then it will have a great impact.”
But he added that he didn’t think his customers would make buying decisions based on the added tax. They tend to buy based on quality and variety, rather than simply on cost.
Tracy Norris, CEO of websites iFurn.com and PainReliever.com, said he is sympathetic to state governments’ complaints about lost revenue, but less so to brick-and-mortar competitors. Customers buy online not for lower prices, but for convenience.
As to the cost, he thinks there will be some casualties among online retailers.
“It could very well put many online companies out of business due to the cost of overhead that it would take to handle the load of work, software and programming expenses that the taxation would create,” he said in an e-mail. “It is unlikely that taxing consumers for Internet purchases will improve a brick and mortars ability to compete with e-commerce businesses, because Internet shoppers are Internet shoppers. They find it simple, quick and convenient to shop from their home, or mobile device in comparison to driving from store to store looking for what they wish to purchase.”
On the other side are brick-and-mortar businesses that see online businesses having a clear edge because they don’t charge 7.3 percent extra.
Greg Hephner of Hephner TV and Electronics said he supports the Senate bill because it is fairer.
“A sale should be a sale regardless of whether it’s a local store or a website,” he said.
It’s an unusual measure that has split Republicans, who have generally stood firm against raising taxes.
Sen. Pat Roberts voted no on Thursday, saying it was a tax increase.
Sen. Jerry Moran voted yes, calling it a matter of tax fairness and local control.
“I support the Marketplace Fairness Act, which provides state governments the right to decide for themselves whether to collect – or not collect – taxes on Internet sales, just like sales between consumers and brick-and-mortar vendors,” he wrote in an e-mail. “The legislation will not impose a new tax on the Internet or anyone. It will, however, protect small businesses and empower states with the ability to control fiscal policy as they see fit.”
The issue has also split businesses and business groups. The National Retail Federation supports it, so do brick-and-mortar stores such as Wal-Mart. Some online services such as eBay remain opposed. Amazon, which bitterly fought efforts in some states to make it collect sales taxes, supports a nationwide system.
Anti-tax groups have labeled the bill a tax increase. But it gets support from many Republicans who have pledged not to increase taxes. The bill’s main sponsor is Sen. Mike Enzi, a conservative Republican from Wyoming, who has worked closely with Dick Durbin of Illinois, a liberal Democrat.
Opponents hope the delay will build public awareness, and anger, at the increase in sales tax that could be coming.
“I think it’s going to be interesting for senators to get a response from constituents over this upcoming week,” said Sen. Ron Wyden, D-Ore. “I’m not sure that the country knows that something like this coerces businesses all around America to collect other people’s sales taxes.”
Contributing: Associated Press