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May 1, 2013

Area shops: Web tax levels playing field

By Richard Whitby
The Daily Star

---- — Small businesses and state treasuries could get some help from Congress this year as it moves toward requiring large Internet vendors to collect state sales taxes.

It’s a bill that brick-and-mortar stores have long supported.

“If this act can put us on a level playing field with some of the … large corporations … it may turn out to be a good thing,” said Anna McLaughlin of McLaughlin’s, which has stores in Oneonta and Norwich.

The Senate could approve the Marketplace Fairness Act as early as Monday.

Both of New York’s senators support the bill, which has received as many as 75 votes in Senate tests.

A spokeswoman for Sen. Kirsten Gillibrand said Tuesday: “Senator Gillibrand supports this common-sense, bipartisan bill to close an unfair tax loophole and level the playing field for New York businesses.”

Sen. Charles Schumer’s office did not respond to a call for comment.

The Marketplace Fairness Act would require all retailers with at least $1 million in interstate sales to collect sales tax based on the buyers’ locations.

To be covered by the bill, states would have to pass legislation that would, among other things, simplify their sales-tax codes, and they would have to commit to providing free software to retailers it covers. The software would enable the vendors to calculate the tax rate for each buyer.

Technically, buyers are required to report their purchases and pay sales tax to state agencies, but compliance is low and enforcement difficult, prompting many states — New York being among the first — to pass laws that compel online retailers to collect the tax, just as brick-and-mortar stores do.

Those stores complain that their obligation to collect sales tax — something the Internet vendors don’t have to do — puts them at a competitive disadvantage on price.

The brick-and-mortar stores also say consumers often use them as showrooms, examining items in person before buying online.

“We do have some folks who like to come in and do that,” McLaughlin said. “They will come in, they’ll shop a bit and check out the features of products, and they will take that business to the Internet.”

She emphasized, though, that her family’s stores provide something online retailers can’t: a direct customer-service interaction.

“Nothing beats personal service, one-on-one attention,” she said, adding that McLaughlin’s also tries to stay competitive on prices.

New York’s so-called Amazon Law has been challenged in court by Seattle-based Amazon, the world’s biggest online retailer, and Salt Lake City-based Overstock.com, another Internet retail giant. Their lawsuits, initially filed in 2008, asserted that the law violated the Commerce Clause of the U.S. Constitution.

New York state courts ruled against them, with the most recent rebuff administered just over a month ago by the Court of Appeals, which ruled the law was valid because those companies “established an in-state sales force” via agreements with affiliates.

Courts in other states, however, have ruled such laws to be illegal.

Perhaps ironically, Amazon favors passage of the Marketplace Fairness bill, but Overstock.com has threatened to take its case to the U.S. Supreme Court.

The high court has already ruled once in favor of the validity of imposing sales taxes on Internet purchases, in 1992, but that ruling limited retailers’ responsibility to collect taxes to states where they had a physical presence, such as a warehouse. Sales taxes that fell outside this circumstance were the buyers’ responsibility, the court ruled.

The current bill has divided the conservative ranks, pitting anti-tax forces against small-business supporters.

Americans for Tax Reform says the bill would be an unfunded mandate for private businesses because it would force them to be tax collectors for the states.

The group — which is led by conservative activist Grover Norquist and has signed commitments from most Republicans in Congress to oppose tax increases — also contends that passage would open the door to other Internet-based taxation, such as a levy on Web use.

Rep. Chris Gibson, R-Kinderhook, however, disagrees.

“This bill does not impose any new tax,” he said Tuesday in response to questions emailed to his office. “Rather, it only allows the existing sales tax to be collected at the time of sale versus paid at the time of filing taxes, as is required by state law for every New Yorker now.”

He also said he the legislation would help small businesses.

“Across the 19th District, local retailers are struggling to compete with out-of-state online and catalog companies,” he said. “My priority in Congress is to protect our local small businesses, and ensure their fair treatment.”

The House version of the bill is not as far along as the Senate version, and its prospects less certain. Moreover, a House version might contain different provisions, such as a higher or lower threshold at which it would apply.

“I would certainly be open to increasing the small-business threshold to ensure we don’t overburden our smallest businesses,” Gibson said.