Online sales have jumped 15 percent this holiday season – a figure sure to catch the eye of legislators in states eager to find fresh injections of revenue for their straining budgets, a Wichita State University marketing professor said.
An estimated $12 billion a year is lost in uncollected sales tax from online-only businesses – including $127.1 million in state and local revenues for Kansas – according to a University of Tennessee study.
“States are becoming very interested in this: ‘Are there ways we can capture that?’ ” said Cindy Claycomb, a marketing professor at WSU. “There’s a push by state legislatures to begin to collect some of that sales tax.
“Almost every state in the union is in trouble in terms of being able to provide the services they have in the past.”
Not having to charge sales tax gave online-only businesses a competitive advantage against bricks-and-mortar stores, and numerous prior efforts to craft legislation requiring online businesses to charge sales tax failed to gain traction around the country, she said.
But that looks to be shifting.
A law requiring sales taxes on Internet transactions went into effect in California on July 1. Amazon, which fought the legislation for years, has now offered to collect and remit the sales taxes from third-party vendors, beginning late next year. During a House Judiciary Committee hearing on Nov. 30, Amazon officials asked Congress to set federal standards for states’ online sales tax collection.
In the absence of federal standards, Claycomb said, states are likely to craft their own legislation governing the collection of online sales tax.
“A lot of states will be watching California” and using their legislation as a guideline, she said.
Collecting online sales taxes is “a big opportunity” for states struggling with revenue shortfalls and unfunded mandates from the federal government, Claycomb said.
Online spending has doubled in just the past six years, to more than $1.2 billion.
But many online retailers are worried that having to charge sales taxes will curtail business, Claycomb said.
“I think it is a valid concern,” she said.
Depending on the state, the difference in pricing can be as much as 10 percent, according to language in the Marketplace Fairness Act, legislation introduced in the U.S. Senate last month. If online pricing is virtually the same as what’s offered down the street, Claycomb said, buying habits may shift again.
Yet, Ryan Reimers, who co-owns with his wife the Old Town gift store Lucinda’s, said “it’s only fair” that online retailers charge sales tax for purchases as well.
“It just makes sense,” Reimers said. “Why should there be a penalty for maintaining a brick-and-mortar store as opposed to an online business?”
Internet retailers who have a physical presence in Kansas – Amazon among them – already collect sales tax here, said Jeannine Koranda, a spokeswoman for the Kansas Department of Revenue.
The state also includes a line item on its income tax form for residents to voluntarily report how much sales tax their Internet purchases generated. For tax year 2010, that amounted to $994,000, Koranda said.
“There are apparently a lot of honest people in Kansas,” she said.
The Los Angeles Times and Daily Tech contributed to this report