published Wednesday, July 25th, 2012

Gov. Bill Haslam urges federal fix for Web taxes

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Should out-of-state retailers collect state sales taxes?

NASHVILLE -- Gov. Bill Haslam urged a congressional committee Tuesday to pass legislation allowing Tennessee and other states to collect sales taxes on items residents buy from out-of-state online retailers and catalog companies.

"This discussion isn't about raising taxes or adding new taxes. This is about states having the flexibility and authority to collect taxes that are already owed by their own in-state residents," he told members of the U.S. House Judiciary Committee.

Haslam, who appeared on behalf of the National Governors Association, said Tennessee is not alone when it comes to losing out on substantial revenues that are owed but not collected by online retailers.

Tennessee's revenue loss is about $400 million annually, money the state could use to cut taxes elsewhere as well as for needs such as infrastructure and higher education, he said.

"Let me be clear," Haslam told committee members. "I am a Republican governor that does not believe in increasing taxes."

Haslam argued the issue of one of fairness for brick-and-mortar businesses because they must collect sales taxes while their online competitors mostly do not because of U.S. Supreme Court rulings.

"Comparable businesses that sell the same things are not being treated the same," said Haslam, who once headed up Saks Direct, an Internet offshoot of Saks 5th Avenue. "Most people I talk to understand that and agree that isn't fair."

In his testimony, NetChoice Executive Director Steve DelBianco sought to dismiss arguments that the federal legislation promotes equity between online retailers and their "brick and mortar" counterparts. The group is a coalition of trade associations and e-commerce retailers.

"It's not equity," he told committee members. "If it was, it would require souvenir shops here in Washington and the outlet malls on I-95 to ask for the IDs of every purchaser and send the sales tax they collect to every state and local government where they live."

The Judiciary Committee conducted its first hearing on the proposed Marketplace Equity Act, a bipartisan bill to provide congressional authorization for states to collect sales tax on the purchases of residents of their own states from out-of-state retailers.

Many states, including Tennessee, have been clamoring for years to persuade Congress to resolve problems arising from a 1992 U.S. Supreme Court decision in which the court held that retailers were only obligated to collect sales taxes from customers in states where the companies are physically located.

However, the court left it open for Congress to resolve the issue under authority granted by the U.S. Constitution's commerce clause.

States say resolving the issue is critical to their finances, and traditional retailers say court rulings have resulted in a government-imposed tax advantage for their online competitors.

The issue has been batted back and forth for years in Congress, but it's picking up steam.

Haslam and others testifying before the Judiciary Committee said easily available software makes dealing with different taxing jurisdictions much easier.

DelBianco also took issue with bill supporters who say it is not a new tax because the tax is already owed but simply goes uncollected.

"It absolutely is a new tax," he said. "It is a use tax today that consumers are required to pay on their purchases. This bill would impose a sales tax on businesses that they have to pay regardless of whether they pass it on to consumers."

Consumers are supposed to be paying a "use tax" when making purchases on items on which the seller doesn't collect sales tax. But virtually no one does.

Contact staff writer Andy Sher at asher@timesfreepress.com or 615-255-0550.

about Andy Sher...

Andy Sher is a Nashville-based staff writer covering Tennessee state government and politics for the Times Free Press. A Washington correspondent from 1999-2005 for the Times Free Press, Andy previously headed up state Capitol coverage for The Chattanooga Times, worked as a state Capitol reporter for The Nashville Banner and was a contributor to The Tennessee Journal, among other publications. Andy worked for 17 years at The Chattanooga Times covering police, health care, county government, ...

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