Merchants: Tax holiday shows need for equity

Merchants: Tax holiday shows need for equity

August 6th, 2011 by Andy Sher in Business Around the Region

At least a couple of times a week, Maggie Jetter says her Nashville store is the testing ground for young mothers and fathers to check out baby merchandise later purchased online to avoid state and local sales taxes.

"A lot of people come in to see, feel and review what they ultimately buy from an Internet retailer," said Jetter, who opened her Tweed Baby Outfitter's store in April 2010. "It's difficult to understand why we reward these faceless businesses on the Internet that often don't contribute as much to our community."

Jetter and other traditional brick-and-mortar retailers can even the playing field with Internet retailers like Amazon and Overstock.com this weekend during Tennessee's three-day tax-free holiday on most school-related merchandise.

But many conventional retailers are anxious for a more permanent equity in how sales taxes are collected. Although consumers are supposed to pay state and local sales taxes on all purchases, only brick-and-mortar retailers or Internet companies with a physical retail presence in a state are required to collect sales taxes, according to the U.S. Supreme Court's governing ruling.

Next year, states and localities are expected to lose as much as $24 billion in uncollected sales taxes on Internet and catalog sales.

Tennessee alone is projected to lose at least $400 million in uncollected sales taxes next year on e-commerce, according to calculations by University of Tennessee's Center for Business and Economic Research.

But the Volunteer State is also benefiting by the location of new distribution centers by Amazon.com in Chattanooga, Charleston and Lebanon, which collectively should add more than 3,000 full-time and seasonal jobs by the end of the year.

Amazon does not currently have to collect sales taxes in Tennessee from such facilities, but state Rep. Gerald McCormick, R-Chattanooga, said he expects that ultimately Amazon and other Internet retailers will be required to collect such taxes.

"I think in the end, they will pay the sales tax," McCormick said. "I think they'll do it all over the country and I think they'll do it in Tennessee."

McCormick said he believes that Gov. Bill Haslam's administration and officials from Amazon have discussed how the state can keep its initial commitment not to require the company to collect sales taxes while moving toward a broader solution to ensure greater tax equity among different types of retailers.

Amazon recently endorsed a plan introduced in Congress by U.S. Sen. Dick Durbin, D-Ill., and others to create a nationwide agreement for Internet retailers to collect sales taxes on the merchandise it sells without having to calculate the individual rates in every jurisdiction.

The proposed Main Street Fairness Act would require retailers of all types to collect sales taxes on most purchases.

"Main Street retailers collect sales taxes on behalf of consumers, why shouldn't online retailers do the same?" Durbin asked when he introduced the legislation.

Paul Misener, vice president of Global Public Policy at Amazon, said the world's biggest Internet retailer supports the effort to simplify sales tax collections nationwide.

"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," Misener wrote in a letter to Durbin.

Such a change is long overdue, according to Barbara Kasoff, president of Women Impacting Public Policy. Kasoff said Internet retailers need to be subject to the same tax rules as brick-and-mortar retailers, especially since traditional, small business retailers account for most of the new jobs.

"Our interest is in stabilizing small businesses, allowing them to sustain and thrive," Kasoff said. "We want them to be able to compete on an equal and level playing field."