Internet sales tax debate flares up in Colorado – are other states next?

The ongoing flap concerning taxes for online sales hit the papers just before Christmas, when Colorado Gov. Bill Ritter called for 2010 legislation to increase requirements for online sales.

For years, state governments and brick-and-mortar retailers have bemoaned the fact that federal law does not require Internet sellers to collect sales tax on a purchase if the buyer lives in a state where the online seller has no physical presence.

With online sales surging, states are bringing in fewer tax dollars and “Colorado lost $117 million last year from Internet purchases on which no sales tax was paid,” according to a Dec. 20 story in the Denver Post.

At the same time, brick-and-mortar retailers are suffering decreased sales due to online competition.

“By circumventing sales-tax collection on purchases, online merchants are able to undercut the total price of identical products and profit through an unfair advantage over local brick-and-mortar retailers,” Christopher Howes, president of the Colorado Retail Council, told the Denver Post.

In recent years, certain states have passed laws requiring out-of-state online sellers or their in-state subsidiaries to collect sales tax. Amazon.com has dedicated a section of its web site to explain the complex tax laws. A section reads:

“Items sold by Amazon.com LLC, or its subsidiaries, and shipped to destinations in the states of Kansas, Kentucky, New York, North Dakota, or Washington are subject to tax.

“Effective June 1, 2008, Amazon.com LLC will begin collecting sales tax on items shipped to destinations within the State of New York as New York has enacted a new law requiring out-of-state sellers to collect and remit sales tax based on advertising. Amazon has filed a lawsuit challenging the constitutionality of this provision. However, as required by the law, we must still begin collecting New York sales tax beginning on that date.”

Right now, it’s up to individual states to enact rules concerning Internet sales tax, because Congress has not been willing to create federal laws. “Congress has a moratorium on addressing Internet sales tax collection until the states Attorneys General reach an agreement on a simplified system,” said Larry Weindruch, director of communications for the National Sporting Goods Association.”

Currently, there is no bill concerning Internet sales tax making notable progress in Congress. Alex Boian, director of trade policy for the Outdoor Industry Association, told SNEWS® that he does not expect Congress to create laws anytime soon because it’s difficult to work through the tangle of tax policies that vary from state to state.

“Some states like Montana don’t even have a sales tax, so a federally mandated tax would put Internet-only retailers at a disadvantage,” he said. “There is also the fact that tax rates vary by state, so uniformity would also be an issue.” Plus, Boian raised other questions. “Would the tax be in shipper’s state or purchaser’s state? Would shipping be taxed?” he said.

Weindruch pointed out that the issue becomes even more hairy when you consider that rates can vary within a particular state. “For example, Cook County, Ill., where Chicago is located, has a higher sales tax than suburban Lake County, Ill. That’s why the Attorneys General have to work out the details before Congress tackles it,” Weindruch told SNEWS.

Both OIA and NSGA are keeping a close eye on the issue, though they say you shouldn’t hold your breath waiting for some resolution.

“I don’t anticipate that it will be put on any legislative fast-track,” said Boian. “It’s controversial enough that it’s not going to pass quickly.”

–Marcus Woolf