Amazon Pushes Lawmakers to Close Online Retailers' Sales Tax Loophole

An Amazon executive Wednesday pressed federal lawmakers to pass legislation allowing states to begin collecting sales-tax from online retailers, closing a loophole that brick-and-mortar stores argue gives their Internet competitors an unfair advantage.

At a House Judiciary Committee hearing, Paul Misener, Amazon's vice president for global public policy, said the online retail giant supports federal efforts to let states require online retailers to charge customers sales tax, meaning that a book bought though Amazon will come with the same sales tax as one bought at the local mall.

Revenue-strapped states, such as California and Minnesota, have pushed their own laws to force online retailers to collect sales from residents. Misener, however, said these states must first receive federal approval.

Congress -- and only Congress -- may, should and feasibly can authorize states to require out-of-state sellers to collect the sales tax already owed, Misener said, according to prepared opening remarks. Amazon has steadfastly opposed state attempts to require out-of-state sellers to collect absent congressional authorization.

There is much at stake for states facing deep budget gaps and austerity measures. Closing the online retailer loophole would provide states with about $18 billion in uncollected revenues, reoccurring annually, according to the National Conference of State Legislatures.

States already have a so-called use tax that is equal to a sales tax. That means a consumer must pay their state the use tax on any item they purchase from an out-of-state vendor. The consumer, however, must report the purchases to the state, making enforcement extremely difficult.

There are currently three bills pending in Congress that would allow states to force online retailers to shoulder the burden. Wednesday's House Judiciary Committee hearing concerned the constitutionality of such legislation.

Nexus Factor

The Supreme Court in 1992, several years before the Internet's exploded, ruled that companies must have a nexus, meaning a physical presence, in the state in order to force sales-tax collection, but opened the door for Congress to change that.

The underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve, said the high court's opinion in Quill v. North Dakota, a case involving company selling merchandise through mail-order catalogs.

Not all big online retailers are lining up behind Amazon. Overstock CEO and Chairman Patrick M. Byrne argued that collecting sales taxes from customers throughout the U.S. would be a burden curtailing future e-commerce businesses.

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, whose company is based in Utah, in his opening remarks.

If states did receive authorization from Congress to force sales taxes on online purchases, Byrne suggested Congress make states offer for free software for sales tax collection and shield online retailers from liability if an error arises.

For small online vendors that may have difficulty operating and accessing such technology, Misener, of Seattle-based Amazon, requested that any legislation include an exemption for them.

Any legislation that would carve an exception for small retailers would surely be a boon for Amazon.

Amazon, Misener said, is prepared to make its technology available as a service to help sellers by collecting sales tax for them.