Internet sales tax hits hurdles
December 10, 2013,
HIGH POINT — A bill that would require online retailers to start collecting sales tax has been slowed in the House of Representatives, but a U.S. retail group pushing for the measure expressed confidence legislation will pass before the end of next year.
"The Marketplace Fairness Act isn't going to happen next week or the week after, but I don't think the bill is sidelined indefinitely," said David French, senior vice president of government relations for the National Retail Federation.
"We see a path forward, and it's pretty obvious to us that this is still very much in play, but it's going to take a little time to get it across the finish line."
A recent Financial Times report said the bill, which passed in the U.S. Senate in May "has been sidelined indefinitely," pointing to the recent government shutdown and opposition from some conservatives complaining that it amounts to a new tax. It also said conservatives are reluctant to take on the issue before next year's elections.
But French said that reasoning is flawed and that he doesn't believe the bill has lost momentum, nor does he believe the current slate of representatives in the House will let it die.
The bill currently is held up in the House Judiciary Committee, which has other pressing issues on its plate, including immigration and patent reform, but French said that just means the process will take a little longer than some would like.
Despite some hesitance on the part of conservatives, the bill has garnered support not just from major brick-and-mortar retailers, such as Walmart and Best Buy, but from e-commerce giant Amazon. (Ebay and Overstock.com, on the other hand, have led the opposition.)
Furniture retailers, including Cardi's Furniture and Badcock Home Furniture & more, are pressing for passage, and e-commerce home furnishings giant Wayfair.com now can be counted in favor of the legislation as well, based on a statement co-founder and CEO Niraj Shah made to Furniture/Today.
"There is no doubt that one clear mandate on sales tax would be more effective for everyone," Shah said. "Federal legislation clarifying how and when sales tax should be collected and remitted would be helpful as online retailing continues to grow and evolve as an industry."
Shah went on to say that "this new source of tax revenue ... will also be helpful to states as they grapple with their various fiscal challenges."
A new survey of more than 240 executives and other decision makers at online retailers suggests that opinions on whether the legislation will hurt business vary based on the size of the e-commerce retailer. The small and midsized companies are the ones that most fear they have something to lose.
According to the survey by assurance, tax and consulting firm McGladrey LLP, 38% of online retailers with annual revenues between $10 million and $1 billion believe the legislation would have a negative impact on their profitability. Fifty percent of those with sales in the $10 million to $50 million range say it would hurt business while 22% with sales of $150 million or more feel the same way.
"While small and midsized companies are understandably concerned about losing a competitive advantage and incurring higher compliance costs, those on the higher end of the revenue range appear to see this as somewhat of an equalizer," said Dustin Petersen, a McGladrey partner.
He said the larger retailers "feel that they have been disadvantaged by charging state sales tax and burdened by the disorganized array of systems through which they have to do so."
In the survey, McGladrey also noted that 43% of respondents said they were somewhat or very likely to consider terminating some online sales in response to the act, and 98% said they would pass along compliance costs to the consumer.
The NRF's French quibbled a bit with the characterization of the act, by some retailers and politicians, as a new source of revenue.
"It's not a tax issue. It's a tax collection issue," he said. "The taxes are due no matter what - whether it's paid in the form of a sales tax collected by the retailer or paid in the form of a use tax collected from the taxpayers at the time they file state income taxes. It's still due. It's not a tax increase in any way, shape or form."
French said he believes most Republicans get that and said an ongoing education process should eliminate any lingering anxiety. He noted the same concerns were raised in the Senate, where the bill ended up passing 69 to 27 in May.
French said when a House version of the bill comes out of the Judiciary Committee chaired by Bob Goodlatte, R-Va., it will have "some different elements to it," and he believes House Republicans will be comfortable with it.
"For those reasons I'm very confident we'll get this done," he said.
He wouldn't speculate on exactly when that would happen except to say he believes it will pass sometime next year, before a new slate of elected officials would lead to a reset.