Tech groups oppose Internet sales tax bill

Several tech trade groups have voiced opposition to new legislation in the U.S. Congress that would require Web-based retailers to collect sales tax from customers.

The Main Street Fairness Act would allow states that have signed on to a multistate tax agreement to collect sales tax from Internet and catalog retailers. The bill was introduced Friday by six Democrats, including Senator Dick Durbin of Illinois and Representative John Conyers Jr. of Michigan.

Bill sponsors argued that the current sales tax system is unfair because bricks-and-mortar businesses have to collect sales taxes and most Internet retailers do not. "Main Street retailers collect sales taxes on behalf of consumers, why shouldn't online retailers do the same?" Durbin said in a statement.

Several similar bills in recent sessions of Congress have failed to pass.

Currently, because of a 1992 U.S. Supreme Court ruling, states aren't allowed to collect sales tax on retailers that don't have a physical presence within their borders. All states with a sales tax require individual consumers to keep track of their online purchases and pay sales tax on them, although few people do.

"Citizens will feel as if they're paying more than before," said Steve DelBianco, executive director of NetChoice, an e-commerce trade group. "Therefore, Congress is going to take the blame for a perceived tax increase, and businesses will blame Congress for new collection burdens for a system that's not simple at all."

Since 1999, a group of state officials has been pushing states to sign the Streamlined Sales and Use Tax Agreement, an effort to simplify sales tax collection across the U.S. The Supreme Court, in its 1992 decision, gave Congress the authority to collect sales taxes on out-of-state retailers if states agree to a simplified sales tax plan.

Twenty-four states have signed on to the streamlined sales tax agreement.

States will lose an estimated US$24 billion in 2012 because of uncollected sales taxes from Internet and catalog sales, Durbin said in a press release. "The Main Street Fairness Act doesn't ask anyone to pay a single penny more in taxes," he said. "Instead, it would help governors and mayors collect taxes that are already owed."

The bill would help state and local governments struggling with budget problems, sponsors said. "This will help our state and local governments avoid devastating layoffs and cuts to essential services vital to the well-being of our local communities," Conyers said in a statement.

The sales tax bill received support from Retail Industry Leaders Association, a trade group representing large retailers, including Best Buy, Apple, Old Navy and Wal-Mart. Also supporting the legislation is Amazon.com, which has opposed efforts by individual states to collect online sales taxes.

"Amazon.com has long supported a simple, nationwide system of state and local sales tax collection, evenhandedly applied to all sellers, no matter their business model, location, or level of remote sales," Paul Misener, Amazon.com's vice president for global public policy, wrote in a letter to Durbin.

But NetChoice and other tech trade groups opposed the new bill, saying it would create costly collection obligations for small online businesses. The streamlined sales tax group has come "nowhere close" to achieving its goal of a simplified sales tax collection effort, DelBianco said.

Some supporters of an Internet sales tax system pointed to software that can automate the process of collecting the tax from multiple jurisdictions. But software would be a fraction of the cost that small online businesses incur in an effort to collect sales tax, DelBianco said. Other costs could include staff training, dealing with returns and exchanges, and dealing with sales tax audits, he said.

Eighteen of the 25 largest Internet retailers already collect sales tax in at least 30 states because they have a physical presence in those states, DelBianco said. The sales tax collection would hurt small businesses trying to use the Internet to expand their sales, he said.

"It's a cruel irony to call this job-killing bill the Main Street Fairness Act," he said.

Also opposing the bill are the Computer and Communications Industry Association, the Information Technology Industry Council (ITI), and NetCoalition, a trade group counting Google and Yahoo among its members.

"The primary focus of ... Congress should be growing the U.S. economy, creating jobs and ensuring long-term American competitiveness," ITI said in a statement. "If passed into law, the Main Street Fairness Act could cause the loss of many online businesses and remove incentives for them to grow and hire new employees. We need to be headed in the opposite direction."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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