equipment suppliers are watching to see what action Congress will take on a
bill that would close a longstanding loophole in how states collect sales tax on
phone, catalog and Internet sales.
BSW Sales Manager Shannon Nichols is on the phone with a customer.
the Market Place Equity Act — H.R. 3179 — appears to be gaining momentum on
Capitol Hill, it was unclear in early September whether it would be voted on by
the end of the year, observers said. A similar version, S. 1832, is moving
forward in the Senate.
The Consumer Electronics Association is
supporting the measures while online retailers like eBay Inc., Google and
Overstock.com oppose the legislation.
The focus of the bills, introduced late last
year, is to “improve the states’ rights to enforce the
collection of state sales and use tax laws,” according to language in H.R.
equipment suppliers and other retailers that sell through a catalog or online must
collect sales tax from customers when the seller has a direct or indirect
physical presence in a state, known as “nexus” — such as a sales office,
manufacturing facility or distribution center.
example, Broadcasters General Store, according to its website, collects sales
tax on catalog and Internet sales from Georgia,
Florida, Illinois, Indiana, Ohio, Kentucky and North Carolina.
“Some of our manufacturers may require us to
collect tax for other states that they have nexus in and this will be added to
your invoice and noted. Anyone not required to pay tax must complete and fax
the appropriate state forms for our files,” according to the BGS website. The
company is headquartered in Ocala, Fla., but has outside sales offices in
Indiana, Kentucky and North Carolina.
The current proposals would expand this
requirement to cover sales in any state, whether the seller had a nexus there
Equipment sellers contacted for this story say collecting additional sales
tax would create a burden and increase operational costs.
“Let’s put it this way, we are not
rushing out to begin collecting taxes from our customers until it is absolutely
required. Ideally we would like the current sales tax system to stay in
place,” said BSW President/CEO Tim Schwieger.
BSW collects state sales tax for Ohio, Nebraska
and Washington. The company would be faced with additional burdens if the new catalog
and Internet sales tax law is passed, he said.
“For the sellers, if these new regulations
result in a complex tax structure, it will be a terrible burden for the small
business owner that will increase expenses and impact cash flow,” Schwieger
said. For sellers, “It will mean more money out of their pocket to pay taxes
results and less money available to buy equipment. The selling price of goods and
services will slightly increase.”
Additionally, “All Internet
businesses will be forced to raise prices to cover increased costs associated
with the tax collection. In the end the buyer pays more,” said Schwieger.
According to government statistics, 45 states
and the District of Columbia impose a sales tax. State tax rates range from 5
percent to 9.35 percent. Penalties and interest rates for non-collection vary
from state to state.
|The SCMS Inc. inside sales group during a recent
training session. From left: Ernie Vincent, Brittany Hilton, Michael Sharpstene,
Bob Cauthen (president), Mike Phelps, Chuck Johnston and Matt Cauthen (vice president.)
The company’s field sales people are not pictured.
collecting sales tax is often a confusing and time-consuming endeavor,
according to Bob Cauthen, president of equipment dealer SCMS Inc.
state defines nexus differently. Some states consider you having nexus just by
selling into the state or attending a trade show in that state. The two
states that we have found are most stringent are Florida and Tennessee,”
SCMS devotes a one full-time staff position to
processing sales taxes, and that workload would surely grow dramatically if new
state sales tax collection laws are adopted. “Even though we have it as
automated as possible, it is so complex that states even have different tax
rates based on the city equipment is sold in,” Cauthen said.
Effective enforcement of a new catalog and Internet
state sales tax law would also be complicated, Cauthen believes.
government cannot efficiently enforce [the new law] on all the companies on the
Internet that are selling into their state, so another approach would have to
be developed. The big websites could be audited easily, but what about the
guy selling via eBay out of his home?” Cauthen said.
The House bill does have a “small seller”
carve-out: “An exception for remote sellers with
gross annual receipts in the preceding calendar year from remote sales of
items, services and other products in the United States” not exceeding $1
million or in the state not exceeding $100,000.
The proposal can
affect manufacturers too. For example, a spokesman for Continental Electronics
Corp. said the transmitter company doesn’t sell over the Internet but it does
collect state sales tax for two states on parts sold to buyers via phone. “CEC charges sales tax on all sales shipped to Texas (8.25 percent) and
Alabama (9–10 percent) addresses,” he said.
Brick-and-mortar retailers have long argued that
their online competitors have an unfair advantage because often times there are
no added sales tax on purchases.
The Consumer Electronic
Association submitted a written statement from President Gary Shapiro to the
House Judiciary Committee supporting the Marketplace Equity Act.
large loophole in the collection of state sales tax is harming traditional
brick-and-mortar retail businesses. The Marketplace Equity Act is an effective
solution that will place all retailers on an equal playing field while
assisting states in collecting approximately $23 billion in uncollected state
sales tax,” according to CEA. “Let’s be clear, the Act would not enact news
taxes. It simply closes a collection loophole.”
Direct Marketing Association, which opposes the new tax collection bills, has
asked Congress to require states and other jurisdictions to simplify their
sales and use taxes before conscripting every remote seller in the country to
become a tax collector for every state with a sales tax.
“There are more than 9,600 taxing jurisdictions
in the U.S. today,” stated Jerry Cerasale, DMA’s senior vice president of
government affairs, in a press release. “Requiring any business to comply with
the rules in all of those jurisdictions in order to do business across state
lines is a precipitously high barrier and a very costly one. It would throttle
new businesses before they even get off the ground.”
specifically has ballooned in the past decade, according to data from the U. S.
Department of Commerce, while catalogue sales have faltered, analysts indicate.
The government agency estimate of U.S. retail online sales for the second
quarter of 2012 was $54.8 billion, an increase of 3.3 percent from the first
quarter of 2012.
retailing free of sales tax originated with a Supreme Court ruling in 1992 and then
the Internet Tax Freedom Act of 1998, which the government passed to help
Internet-based business flourish. The act exempts e-tailers from collecting
sales tax unless they’re selling to customers in a state in which they have a
physical presence or nexus. In 2007, the current version of the Internet Tax
Freedom Act was extended to 2014.
to one member of Congress, it’s likely that a congressional vote on the bills
will have to wait until 2013. Virginia Republican Rep. Randy Forbes told The
Virginian Pilot newspaper he doubts the legislation requiring sales tax
collection on Internet transactions will get through Congress this year.
However, he does expect the
bills to pass both houses when they do come up for vote.