published Sunday, July 10th, 2011

Bill Haslam’s Internet mission

An agreement sealed by former Gov. Phil Bredesen relieved Amazon.com of the duty to collect Tennessee’s state and local taxes on sales to Tennesseans. Thrust into that situation, Gov. Bill Haslam has been patient and conciliatory toward Amazon’s resistance to a late-coming legislative effort to force it to collect those sales taxes anyway. But Haslam has at least acknowledged that Tennessee, and other states, need a national fix for the problem of Internet retailers that unfairly refuse to collect and remit states’ sales taxes.

Haslam’s shift is a step in the right direction. He built on it, moreover, when he said last week that he is willing to lead an effort among America’s governors to promote passage of a pending bill before Congress that would offer a national solution to the problem.

The bill is known as the “Streamlined Sales and Use Tax Agreement.” It essentially proposes a compromise with Internet retailers that would require them to collect and remit standardized state and local sales taxes for all the states that sign on to fixed rates, even if they differ from the varying rates that individual states and local governments already impose.

This should be a no-brainer for all sides. It would mitigate some of the inequitable advantage that Internet retailers unfairly enjoy over local brick-and-mortar retailers, which have to pay other state and local property taxes as well as collect sales taxes.

The embedded costs for local stores are obviously higher than those for Internet retailers. The sales tax is just one more burden they have to bear to serve a customer base that is increasingly able and willing to turn to their lower-cost Internet competitors. The streamlined sales tax would help even the competitive playing field, but it would not level it. Regardless, any progress would be welcome.

Problem is, that solution has been on Congress’ backburner for nearly a dozen years, mainly because senators and congressmen admittedly receive no benefit from intervening in a matter that is mainly a state and local issue. It doesn’t help that in the interim, national Internet retailers have built an effective lobbying army and begun pumping campaign donations to Congress to combat the measure. It won’t be easy to overcome their lobby power and persuade Congress to adopt a streamlined sales tax.

However formidable, it’s a challenge worth pursuing. Haslam pointed out in a meeting with reporter Richard Locker, of the Commercial Appeal in Memphis, for instance, that Tennessee is already losing $300 million to $500 million annually in sales tax revenue that is not being collected by Internet retailers on sales to Tennesseans.

That figure can only grow as tech-savvy consumers with new smart phones widen the use of apps that let them scan bar codes on items of all sorts and immediately download price comparisons and potentially better deals, both in other brick-and-mortar stores and through on-line retailers.

Waiting patiently on equity, and a seemingly immovable Congress, is simply not a good option for states, nor for brick-and-mortar retailers. It’s to every state’s and community’s advantage to treat their brick-and-mortar businesses fairly to prevent an Internet-based cannibalization of commerce — and an ensuing raft of empty big-box stores (and smaller ones, too) that have gone out of business and are no longer paying property taxes and providing jobs and shopper convenience.

If Haslam is volunteering to lead the charge to make Internet retailers collect sales tax, he had better get started. Local retailers and tax-needy communities will be watching anxiously to see if he makes good on his promise

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AndrewLohr said...

If I were selling stuff over the internet, I'd be willing to pay and send in sales taxes to one state, but not to 50. If someone from California visits TN and buys something here, they pay local sales tax. So if they buy something from a TN web site, let the site pay TN like a store, but not pay CA and other states.

July 10, 2011 at 12:51 a.m.
Gerry_DiNardo said...

This idea of "leveling the competitive playing field" is somewhat overstated. The fact of the matter is that we are dealing with two distinctive business models and there can never be a true "level field" between an internet retailer and a brick-and-mortar retailer. Each offers it's own distinct advantages to the consumer, and it's up to the consumer to weigh such advantages. Sometimes, a consumer may favor the brick-and-mortar's ability to offer a tangible purchasing experience and the instant gratification that comes with walking out of the store with the product upon checkout. Other times, the consumer may prefer to forfeit the instant gratification a physical shopping experience offers in favor of a discounted price of the digital experience.

Brick-and-mortar retailers will never be able to compete with internet sales on price, as this is the nature and distinction of the two business models. Internet retailers typically experience much lower overhead and associated costs. But brick-and-mortar types can offset this with a real shopping experience that internet retailers can never produce.

Clearly, the sales tax advantage enjoyed by some internet retailers in certain states widens the profit margin, and a streamlined sales tax agreement would mitigate that margin somewhat. But brick-and-mortar stores will forever experience smaller margins on retail sales vs. their internet competitors.

Additionally, the article implies that internet retailers are, or would be, opposed to a streamlined agreement. I think it's important to note that the now local internet giant, Amazon.com, has supported the streamlined sales tax project since it's inception in 2000. The implication above is that Amazon.com has actively lobbied Washington to prevent such legislation, and this is not true. Amazon and others recognized a decade ago the long-term solution to be a streamlined sales tax, and they have actively held this position in D.C. since.

July 10, 2011 at 1:08 p.m.
krk said...

With our grid-locked, polarized and dysfunctional politics in Washington, federal legislation is unlikely to happen.

Proponents of e-fairness should look to the same place that naively caused this problem to exist, the Supreme Court, by using Amazon’s appeal on New York state’s Amazon Tax legislation as a vehicle to get the court to reverse its Quill vs. N.Dakota decision.

Here is a blog post echoing the same pessimism: http://robertkugel.ventanaresearch.com/2011/07/ “Recently, I came across a piece of research from a well-known IT research firm that was published in 2000 on the topic of applying sales tax to Internet purchases. It was amusing that the report forecast that by 2005, the streamlined sales (and use) tax agreement (SSTA) would be in force and states would be raking in taxes from out-of-state purchases. More than a decade after this prediction was made, it still hasn’t happened.”

July 10, 2011 at 11:02 p.m.
328Kwebsite said...

Corporations play the multi-state game to take whatever advantage they can. Amazon knew that this state had a sales and use tax before they came here. It's obvious those laws already apply to Internet transactions.

They knew they were granted exception to create an increase in equity through new jobs. They know full well that by advertising that they will not hire unemployed people that they are only taking existing equity, not creating new equity. Raiding an employee from a neighboring business is not job or equity creation. This means that they are taking the tax avoidance advantage without fulfilling their responsibilities to the state and its people. Now, they feign surprise when they are about to be refused continued advantage.

While most of our people may not be articulate enough to explain Amazon's economic failure to fulfill its obligations to the state's tax laws, we are all aware that Amazon's claim stinks.

You cannot take a tax break without a reason when the law says we will all pay this tax if we need a business license. Amazon needs to either live up to the conditions of the agreement, or expect that they will not continue to receive benefits.

We granted a tax break for job creation, not a wish from a genie lamp.

We should closely scrutinize the wording of the governor's proposed legislation. He has a reputation for granting himself and his business material advantages by selectively enforcing laws as they apply to his chain of gas stations.

Existing tax laws are supposed to cover this concept of sales and use tax for Internet transactions already. We should be suspicious of the governor's proposed revisions.

July 11, 2011 at 5:59 p.m.
328Kwebsite said...

One of the larger dangers that can be created by re-writing the existing tax collection laws as they apply to the Internet would be to create an enormous loophole for retailers who use telecommunications in their routine transactions.

Like, how about every credit card swipe at Governor Haslam's gas stations be tax free?

Credit card swipes are no different than the direct entry of payment information into a website. It's all Internet now.

Magnetic stripe readers, bar code readers, image scans or direct keyboard entry: they're all considered as input by most computer programs that use them. There is no magic designator between telecom beside a cash register or over a web page. It's all Internet, all the time, when it comes to commerce.

Link up some lies about Internet input to tax avoidance and multi-state corporations' tendencies to claim almost random addresses: it doesn't take a financial whiz to expect that businesses will invent a way to get out of paying for everything while charging us a fortune for it.

Watch Governor Haslam carefully, as he has already done what he could to use the laws to save his collection of gas stations some money by avoiding his environmental responsibilities. Surely, he would not hesitate to use our low understanding of computers and finance into tricking us into giving himself some more money at the public's expense.

July 11, 2011 at 6:17 p.m.
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