Business

Federal online sales tax bill may emerge from ‘limbo’ in 2015

Melissa Fox, bookseller, helps Julie Kice of Wichita at Watermark Books on Tuesday. Watermark is among a number of stores that has supported federal legislation requiring all retailers, including those who operate online, to assess sales taxes on customers’ purchases.
Melissa Fox, bookseller, helps Julie Kice of Wichita at Watermark Books on Tuesday. Watermark is among a number of stores that has supported federal legislation requiring all retailers, including those who operate online, to assess sales taxes on customers’ purchases. The Wichita Eagle

Local retailers and state tax officials hope 2015 is the year that all online retailers will have to begin collecting state sales tax from customers.

But the reality is they could be saying the same thing this time next year.

Federal legislation to require that online purchases be subject to sales taxes, as are sales in brick-and-mortar businesses, has remained stalled in the House of Representatives. The Senate passed a bill called the Marketplace Fairness Act more than a year and a half ago.

At issue is billions of dollars of tax revenue for states.

It’s also an issue of fairness, claim proponents, who say the tax-free online sales put brick-and-mortar retailers at a competitive disadvantage, especially as more and more state and local governments turn to sales taxes as an alternative to property or income taxes.

Opponents of the bill argue its passage would mean higher costs for businesses, which would be required to collect taxes, and those costs would be passed on to consumers. The bill would also serve as “regulations without representation,” requiring businesses to collect taxes for a jurisdiction where it has no operations, and thus no ability to participate in the taxing jurisdiction’s political system, said the conservative FreedomWorks group.

The National Conference of State Legislatures estimates that states lost more than $23.3 billion in tax revenue in 2012 from uncollected sales tax on online transactions, according to its most recent estimate.

In Kansas, the state estimates it could collect about $90 million in additional state and local sales tax if the federal bill were signed into law, said Steven Brunkan, Kansas Department of Revenue financial economist.

He said an online retailer that doesn’t have a physical presence in Kansas is “under no obligation to collect Kansas tax at this time.”

Instead, Kansas taxpayers are supposed to self-report on their state income taxes purchases they made online, but Brunkan said many don’t.

But some do, Brunkan added. He said the state collects a little more than $1 million a year in sales tax from individual taxpayers who do report online purchases on their income taxes.

Brunkan said the revenue department supports passage of the Marketplace Fairness Act.

“Everybody always hopes this is the time that it will go through,” Brunkan said of the federal legislation. “It’s kind of one of those in-limbo things.”

He admits that sales tax collection is complex, if only because there are so many taxing jurisdictions. In Kansas alone, he said, there are more than 800.

“It’s a lot for retailers to track,” Brunkan said. “(But) it’s getting simpler because of tools, technology.”

Brunkan said the state does receive some sales taxes currently from major online retailers because Kansas is – and has been for nearly 11 years – a member of a group of 24 states participating in the Streamlined Sales and Use Tax initiative, in which the participating states developed a framework to simplify sales tax collection for retailers. He said Kansas receives sales tax collection from about 45 of the top 50 major Internet retailers that have agreed to participate in the initiative.

Brunkan said the revenue department estimates Kansas collected a little more than $41 million in fiscal year 2014 from participating in the initiative. In fiscal year 2015, it estimates the state will collect $46 million, he said.

Sarah Bagby, owner of Watermark Books and Cafe, said the ability of online booksellers to sell products without collecting sales tax puts her business near Douglas and Oliver in east Wichita at a substantial disadvantage.

“It’s about a 10 percent tax advantage (for her Internet-based competitors),” she said. “If I have to collect it, then others should have to collect it, too.”

Paul Hudson, owner of Lawrence Photo, a camera shop near Central and Woodlawn, said it’s difficult to compete when a customer can save hundreds of dollars on a purchase by making it online.

“On a $2,500 ticket that can add up to a couple hundred dollars (in sales tax),” Hudson said. “It would be nice to see everything on a level playing field.”

David French, senior vice president of governmental relations for the National Retail Federation, which supports the bill, said he expects some form of the bill to move forward in the House in 2015.

“The leadership understands it’s a problem that won’t go away,” French said.

The owner of a Wichita-based online retailer thinks online sales tax collection is “imminent.”

“Really, we operate under the assumption that it will happen, it will affect us,” said David Sasson, president and CEO of OverstockArt.com, which sells hand-painted reproductions of oil paintings and prints of famous works and artists.

“I just think the states will find a way to collect,” he said. “My main consideration is how do we actually accomplish it? The Amazons of the world, they have the resources to be able to calculate it all and take care of it. For us, it’s difficult.”

Reach Jerry Siebenmark at 316-268-6576 or jsiebenmark@wichitaeagle.com. Follow him on Twitter: @jsiebenmark.

  Comments