Friday, November 23, 2012

As we approach "cyber Monday" the equivalent of "black Friday" for online retailers are there changes on the horizon? For many years the outcry regarding the advantage that online retailers have regarding the collection of sales tax has increased in volume. At issue is an estimated 329 billion dollars in uncollected sales tax revenue the states fail to realize due to untaxed online sales into their state. In addition to the lost tax revenue local brick and mortar sellers insist that the click and mortar sellers have an unfair and government supported advantage. The Alliance for Main Street Fairness has been on the front line of this battle for several years. (www.standwithmainstreet.com)

It is not that online sales, or purchases by the individual are not taxable, they are. It is the fact that under the current interpretation of the U.S. Supreme Court's ruling in Quill vs. North Dakota in 1992. In summary the Supreme Court ruled that companies not having a physical presence in a state are not required to collect any sales taxes on their sales into that particular state. To balance this interpretation every state has laws on the books that require the individual to voluntarily report their out of state purchases that were not taxed, and pay the tax directly to the state either on a separate return or on their state income tax return. This is called "use tax".

It is obvious from the estimated lost tax revenues that this voluntary system is not working. To add to the urgency states continue to try to find additional sources of revenue in expectation of reduced assistance from Washington. So what is being done?

There are currently as many as three bills at the national level that would give states the authority to pursue and enforce collection of sales taxes by online sellers. These three bills vary slightly in the application and method but all result in the same end, increased sales tax revenues for states. The primary issues to be resolved are the minimum thresholds businesses will have to meet regarding online sales revenues before they are required to start collecting sales tax and how to measure and enforce those guidelines.

From the retailer side of the cyber-street, no pun intended, Amazon has been the most aggressive in preparing for the inevitable change it sees coming. It is ironic that Amazon has been the most vilified online seller in this debate. For years Amazon only collected sales tax in five states while maintaining warehousing or affiliate relationships in almost every state. Now they are at the front of trying to shape the new impending legislation. In the last two years or so Amazon has or is currently negotiating with states they have a physical presence or affiliate relationship arrangements to start collecting sales tax on sales into those states. In many cases these arrangements have included delayed collection dates up to two years in exchange for bring jobs to those states with new or expanded distribution facilities. This aggressive action and strategy has allowed Amazon to dictate its own fate in most cases and allow plenty of time to prepare.

So will this be the last cyber Monday with no sales tax charged by the seller? I expect the odds are very good this year we will see changes in the cyber sales world. With budget mountains facing federal legislators and states wanting to protect their revenue base then the climate seems right for serious consideration and action.