Fight over Internet sales tax heats up

Requiring all Internet retailers to collect sales tax on every purchase made online would level the playing field with bricks-and-mortar businesses, create an estimated 11,000 retail jobs across Ohio and give states and counties a much-needed revenue boost, according to proponents of a bill dubbed the “Marketplace Fairness Act” that will receive its first hearing today in the U.S. Senate.

Both the senate bill and companion legislation pending in the U.S. House of Representatives have attracted Democrat and Republican sponsors, and are supported by a strange-bedfellows coalition that includes retailers’ groups, small-business owners, Wal-Mart and — somewhat surprisingly — Amazon, which would rather see a federal solution than a patchwork of state collection procedures.

But another coalition led by NetChoice, a Washington, D.C., group of trade association and e-commerce sites including eBay and Facebook, disagrees, saying that lawmakers “have created a poison pill for the Internet, consumers, and – worst of all – the very small businesses the bill seeks to help,” according to NetChoice Executive Director Steve DelBianco.

John Marshall, owner of Grismer Tire, isn’t buying it. Earlier this year, Marshall was named to the Ohio Main Street Leadership Council that is designed “to represent small businesses across the state in their effort to remedy the online sales tax disparity,” the council said.

Marshall, whose 24 retail stores are spread across central and southwest Ohio, said by allowing some online retailers to avoid collecting sales taxes, “the government is picking winners and losers.” Some of his customers order tires online, then come to Grismer and ask for the tires to be installed on their vehicle, Marshall said. Those tires have gotten more expensive in recent years as larger, wider tires became more popular, and as the price of rubber and petroleum rose.

“Why should one company enjoy a 7 percent competitive advantage over a company that is inside the state, employing the people of that state, and providing services and paying income taxes and workers comp taxes in the state?” Marshall said.

Two Dayton-area jewelery store owners say the current system hurts their business, because of the price difference on high-ticket items and the low shipping costs for jewelry.

Fred Weber of Weber Jewelers in Kettering said he discontinued a line of luxury watches recently because customers told him they could find the watches for 30 percent cheaper online. Weber tried to match the price, then customers wanted a tax concession as well.

John Stafford, founder of Stafford Jewelers in Miami Twp., said he recently lost out to an online jeweler on a $100,000 sale to a local customer because of the sales-tax issue. And Internet businesses such as the online jeweler “contribute nothing to the roads, schools, police and fire in our community,” Stafford said.

Local buyers of online goods are supposed to keep track of online sales and record the totals on state income tax forms. But less than 1 percent of Ohio taxpayers do that, even though more than 60 percent of filers purchase items online, according to a 2010 survey. A University of Cincinnati study projected that the failure to collect sales tax from all online retailers cost Ohio more than $200 million in 2011, according to the Alliance for Main Street Fairness.

The Dayton Area Chamber of Commerce, which has launched a “Buy Local” campaign, favors the legislation, believing it will encourage Miami Valley residents to spend their money at neighborhood stores, according to Chris Kershner, the chamber’s vice president of public policy and economic development.

“When you have local Dayton-area stores that work hard to put up bricks-and-mortar facilities and have competitive retail prices, and an online firm doesn’t have to charge sales tax, that’s not a fair marketplace,” Kershner said.

NetChoice’s DelBianco told a congressional committee last week that the argument that remote sellers have an unfair advantage just doesn’t hold up.

“Paying sales tax for thousands of jurisdictions in 46 states in far more expensive and complex than paying sales tax for a single jurisdiction on over-the-counter purchases,” DelBianco said.

Tod Cohen, eBay’s vice president for government relations and deputy general counsel, told InternetRetailer.com, “It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity.”

But the political winds may be shifting on the issue. Two weeks ago, the Wall Street Journal published a story under a headline of “Tax Break Nears End For Online Shoppers” about key Republican governors, including New Jersey Gov. Chris Christie, dropping their longtime opposition to imposing sales taxes on online purchases.

Rob Nichols, spokesman for Ohio Gov. John Kasich, said Tuesday that the governor has not taken a position on the federal legislation. “We’re following (the issue) closely,” Nichols said.

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