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Brick-and-mortar retailers, facing tough competition from Internet merchants like Amazon.com Inc. (AMZN), are launching a new effort to persuade a Congress full of tax-averse Republicans to authorize states to collect sales taxes for purchases from out-of-state online merchants.
Internet retailers, which are not required to collect sales tax from out-of-state customers, had a 7% slice of the U.S. retail market last year, with sales totaling almost $200 billion, according to Forrester Research Inc. Concerned that merchants with a physical presence are at a disadvantage, traditional retailers are seeking legislation to give states the power to force outside-the-border online retailers to gather sales taxes.
A problem is that many Republicans are reluctant to take any action that looks like a tax increase. "I'm against raising taxes, period," Sen. Orrin Hatch (R., Utah), the top Republican on the Senate Finance Committee, told Dow Jones Newsiwres this week. Sen. Dick Durbin (D., Ill.), who has teamed up with Sens. Mike Enzi (R., Wyo.) and Lamar Alexander (R., Tenn.) to steer online sales tax legislation through the U.S. Senate, said "we need more help from the Republican side."
The National Retail Federation last week sent 200 retailers to more than 100 meetings on Capitol Hill--65 to 75 with Republicans--with a message of sales-tax fairness. The group is also reaching out to conservative online sites--it won't say which--and hopes the Republican-controlled U.S. House Judiciary Committee will hold a hearing or vote on legislation within the next two months.
"They've told us time and again that they need to hear from more people--more real people--about how bad this problem is and they need to be pushed," said David French, the group's chief lobbyist and a former Republican aide on Capitol Hill. "We don't believe this is a partisan issue, but there are certainly activists on the conservative side who could make this harder by misstating what is going on, so we feel by educating online in the conservative space we could help to tamp that down."
The Supreme Court ruled in 1992 that online merchants don't have to collect sales taxes in states where they lack a physical presence. The decision left room for Congress to resolve the matter. In the meantime, online retailers have landed what amounts to a windfall, escaping more than $11 billion a year in state sales taxes, according to data provided by the National Conference of State Legislatures.
Merchants such as Jim Adams, owner of Falls Road Running Store in Baltimore, say that the current situation creates big distortions, shifting the burden of local taxes onto one set of taxpayers. He says that the advent of price-comparison mobile apps, which allow shoppers to scan in bar codes and instantly compare in-store prices to online prices, has made the problem worse.
"More and more these days, after going through the entire process, customers are simply pulling out a smartphone device, scanning the product and telling us we'll take a look...let me see who can sell it the cheapest," says Adams. He adds "it's just deflating" for the new college graduates he hires when the customers buy online instead for the price discount.
A key development occurred last November when Amazon.com, the world's biggest online retailer, came out in support of federal legislation permitting states to collect state sales tax from online merchants as long as few companies were allowed to escape the requirement. Amazon.com has been reaching deals with individual states to collect state sales tax as cash-strapped states look for additional revenue. Amazon.com most recently announced a deal with Texas. It already collects sales tax in several other states.
A crowded tax calendar is another problem for retailers. On Friday, House GOP leaders said they planned a vote on extending the 2001 and 2003 Bush tax cuts before the chamber adjourns for its August recess. The deadline will make it hard for other tax issues to attract legislators' attention.
-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; firstname.lastname@example.org