Congress joins Amazon tax fight; $24 billion in revenue at stake

California earlier this year became the seventh state to enact legislation to tax online retailers.

Although it affects every e-seller, it's commonly called the Amazon tax since the giant books-and-more retailer is leading the fight against similar measures nationwide.

In fact, Amazon has been given the OK by a Golden State court to start collecting anti-tax petition signatures in an effort to put the e-commerce tax issue to the voters. If around 505,000 registered California voters sign off on it, then they and their fellow residents can vote on whether the new tax should stay on state's tax books.

Could this be the 21st century's Proposition 13, a grassroots effort to end or at least limit online sales taxes?

Among those likely to be signing on early are small e-tailers, many of whom say that the new sales tax law already has put them out of business.

Now Congress has stepped into the fray.

Last week, Sen. Dick Durbin (D-Ill.) introduced legislation that would require Internet-only retailers to add sales taxes to customers' bills.

In sponsoring the Main Street Fairness Act (no bill number has yet been assigned), Durbin emphasized the fairness portion of the title, saying online businesses should comply with state tax laws the same as their competing brick-and-mortar stores do.

Durbin also cited the potential cost of uncollected online sales taxes: $24 billion. And that's this week's By the Numbers figure.

"In 2012, states across the country, including Illinois, are expected to lose as much as $24 billion in uncollected state and local taxes on internet and catalogue sales. From 2005 to 2010 the state of Illinois estimated it lost $153 million each year," said Durbin. "The Main Street Fairness Act doesn't ask anyone to pay a single penny more in taxes. Instead, it would help governors and mayors collect taxes that are already owed."

Durbin's proposal, along with a companion bill in the House, is aimed at closing a legal loophole created by the 1992 U.S. Supreme Court ruling in the Quill case that retailers only have to collect sales tax in states where they also have actual stores. 

Since states that collect sales tax also collect use taxes on goods bought elsewhere but, as the name indicates, used by the consumer in the taxing state. But use tax collection is problematic. Basically, states depend on the tax knowledge and compliance of consumers for these taxes.

Good luck with that. Use taxes essentially are useless.

Online retailer reversal? Amazon typically has fought state-by-state online tax laws as they're cropped up.

In addition to California, online sales tax laws have been enacted in Arkansas, Connecticut, Illinois, New York, North Carolina and Rhode Island. Colorado's Internet tax law was struck down by a federal judge last year. Texas lawmakers passed such a law this year, but it was vetoed.

But when it comes to federal legislation, the Seattle-based company takes a different point of view.

During a conference call with industry analysts, Amazon chief financial officer Thomas Szkutak said that his company has long supported a "federal simplified approach" to the sales tax issue: "We think in the U.S., that the federal solution's a great way to solve this."

Amazon's vice president for global public policy reiterated that support in a letter to Durbin: "I am writing to thank you for your bill that would allow states that sufficiently simplify their rules to require collection of sales tax by out-of-state sellers."

Streamlined tax approach: The main reason for the support is that Durbin's bill is the federal authorization necessary for the Streamlined Sales and Use Tax Initiative to move forward. 

This agreement between 44 states, the District of Columbia and local taxing jurisdictions was created in response to the Quill decision. Its big appeal is that it would simplify sales tax collection and administrative duties for both governments and retailers.

In addition, Durbin's bill would exempt small businesses, compensate retailers for startup sales tax collection administrative costs and free customers from use tax obligations.

Far from a done deal: Not every business, however, likes the bill.

EBay opposes it because it would impose "new taxes and regulatory burdens" on small online businesses, according to a company statement.

And this isn't the first time that such legislation has been introduced in Congress. Previous efforts have stalled.

Will Durbin's bill finally succeed where others failed?

Related posts:

• Sales tax, use tax and Internet purchases
• Are Amazon taxes costing states money?
• Sales tax collection on online purchases:
  legislation to ease it, lawsuit to stop it

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Comments

[JudyB]

I find it more than a little ironic that Walmart is joining the fight against Amazon. For years, people have accused Walmart of running the "little businesses" out of business. In reality, people "chose" to shop there w/their hard earned money to save a few dollars. I love my great State of Texas, but feel no guilt at ordering from Amazon every chance I get. It saves me time, gas money, AND sales tax and I get free shipping. We pay taxes through the nose, I don't feel like we're cheating the system because they missed a few dollars of sales tax. Manage the tax dollars collected w/more integrity and we wouldn't be having a budget problem to begin with!

[Ternie]

I highly doubt Congress is missing out on $24B every year. If people didn't buy online, they would buy locally. It's just forcing the hand to support local business, which I think is OK in the long run, but people buy online for a reason. Don't kill e-commerce because of your greed. Take a paycut, jerks.

[Grigory]

Ebay and Amazon are giant corporations that can afford to hire an army of lobbyists if that means protecting their bottom line. The pro-tax movement has no champions to take up its cause and is therefore doomed to fail.