Industries Technology

An online advantage?

Main Street Fairness Act would require online retailers to collect sales tax.

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Print this page by Richard Foster

If you want to buy a $47,000 child’s bed that looks like Cinderella’s coach, PoshTots is the place to get it online. You might incur some hefty shipping costs while earning your parent-of-the-year trophy, but you won’t have to pay sales tax — at least at the time of purchase.

And therein lies the rub behind the Main Street Fairness Act. Introduced in August by U.S. Sen. Dick Durbin, D-Illinois, and U.S. Rep. John Conyers, D-Michigan, the bill would require any business engaged in “remote” retail sales, including catalog and phone sellers, to collect state sales taxes on purchases.

However, the act is mainly drawing attention because it would require online-only retailers like PoshTots to collect sales taxes from consumers in other states. Currently, online retailers are not required to collect sales taxes from consumers unless the retailer also has a physical retail store in that consumer’s state.

The consumer, however, is still legally responsible for paying the tax, though that really hasn’t been happening in practice. The bill’s sponsors and advocates, who include associations funded by Wal-Mart, say this gives online-only retailers an unfair advantage over their bricks-and-mortar counterparts.

The Northern Virginia Technology Council and other technology associations have allied against the bill, along with major e-retailers, including eBay, claiming it would place undue financial and bureaucratic burdens on technology businesses in an already fragile economy.

“It would have a huge impact on us,” says Andrea Edmunds, owner and CEO of Henrico County-based PoshTots. An online-only retailer of luxury nursery and children’s furnishings and custom interior design services, PoshTots counts among its customers Julia Roberts, Gwyneth Paltrow and Heidi Klum.

“Logistically it would be a nightmare” to collect different sales tax rates from each state, Edmunds says. “It would take a lot of back-end technical support.” Furthermore, she says, online retailers are already at a disadvantage because online retailers have to either charge shipping fees to customers or eat the shipping costs themselves.

Steve DelBianco, executive director of NetChoice, a Washington, D.C.-based lobbying group for Internet commerce, agrees. He says this bill not only penalizes online-only businesses, but also mom-and-pop retailers who sell wares online: “Online sales are about the only way small retailers can survive being steamrolled by the big-box chains who are behind this bill.”

Josh Levi, vice president of policy for the Northern Virginia Technology Council, says about half of his association’s 1,000 member companies are small technology businesses with fewer than 10 employees. The council is advocating exemption from sales-tax collection for small technology businesses and also wants all companies exempt from the possibility of being audited by multiple states for sales-tax collections.

Levi says other issues include which state’s tax rates should be applied — the consumer’s state or the state where the online retailer is located — the creation of a multistate sales-tax database, and whether online businesses should be required to shoulder the costs of integrating the database into their existing e-commerce systems.

The Main Street Fairness Act has been in discussions for more than a decade, and other versions of the bill have died in committee. The latest legislation has been referred to the U.S. Senate Finance and House Judiciary committees, but no hearings have been scheduled.
In its current form, the bill proposes an exception for “small sellers,” but defining that term is ultimately left up to the Streamlined Sales Tax Governing Board. Twenty-four states, not including Virginia, are full voting members of the board. To become a member, states must ratify supporting legislation similar to the Main Street Fairness Act.

Despite its complexities, the bill’s advocates say the issue is simple: “The playing field needs to be leveled between online and bricks-and-mortar businesses,” says Danny Diaz, executive director of the Alliance for Main Street Fairness, an Arlington-based national business coalition with links to Wal-Mart.

Diaz says his group isn’t opposed to exceptions for small and emerging technology businesses. However, he says the government shouldn’t be giving favored status to online retailers.

Ward Tefft, owner of Chop Suey Books, a bricks-and-mortar used bookseller in Richmond, says the issue concerns him more as a citizen than a businessman. “It’s frustrating,” he says. “They operate within our localities and use our facilities and our services, and they don’t contribute to the sales tax. It’s a little unfair.” 

Regardless, Diaz says, online retailers haven’t done an adequate job of informing “Joe and Jane Public that there’s a tax liability they have incurred, and they’re carrying around that liability that could expose them to an audit.” 

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