E-commerce sales taxes take center stage in House Judiciary hearing

Josh Peterson Tech Editor
Font Size:

In a full committee hearing Wednesday morning, the House Judiciary Committee explored several pending pieces of legislation that would give states permission to collect sales taxes on online purchases.

Traditional brick-and-mortar retailers complain that online merchants have an unfair advantage because the lack of state sales taxes amounts to a discount for online shoppers. Online-only retailers insist that if they are to collect sales taxes, states should foot the bill for the specialized tax-collection software that would be required.

“Today, bricks-and-mortar stores like ours are becoming the showrooms for online-only companies like Overstock, Amazon and eBay,” Dan Marshall, owner of Marshall Music, Inc., told the House Committee.

Marshall testified on behalf of the Michigan Retailers Association. His business, based in Lansing, Mich., employs 300 full and part-time employees — a workforce down approximately 10 percent from peak employment “a few years ago,” he said.

State governments are exploring online sales tax as a way to combat spiraling budget deficits. Michigan, whose state sales tax rate is 6 percent, carried a $2.3 billion deficit for the 2010 fiscal year.

Texas state representative John Otto told the committee that instead of being forced to raise taxes, states should be able to collect taxes to which they are already entitled under existing law.

“Before I vote to increase a state sales tax that would only increase the current disparity between local and out of state retailers, it only makes sense to first collect the taxes states are already due,” said Otto.

Overstock.com chairman and CEO Patrick Byrne cautioned congressmen about the “burden of remote state sales tax collection” on online retailers who conduct business in one state but may be expected to collect taxes on behalf of 49 others.

“We oppose the pending bills because they ‘outsource’ to retailers, without compensation, the burden of collecting taxes from residents of states where those retailers have no physical presence nexus,” said Byrne.

He testified that “because tax collection is really a duty of states and not retailers, the states should be required to provide a truly plug-and-play affordable software solution.” Software like this, he added, requires “approximately $300,000 of investment and months of manhours” for Overstock staff to build.

“Implementation of this solution for the nation’s nearly 10,000 different taxing jurisdictions would be extraordinarily costly for companies like ours,” said Byrne. “So if states want to tax our sales to their residents when we have no physical presence there, they should bear the cost of supplying the software.”

Follow Josh on Twitter