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States rue sales tax losses as holiday online shopping season gains steam

Nov 26th 2007
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Shoppers who decided to pass up the thrills of "Black Friday" and wait for the "Cyber Monday" sales are expected to spend record amounts this year. And they are also expected to keep track of the amount of sales tax they would have paid on purchases as if they had made them at a local retail store, and voluntarily declare them on their state tax returns, something they can easily forget to do. And legislators in Florida, New York, and Connecticut, who see huge losses in tax revenue resulting from Internet sales, are not finding any easy solutions to their collections problems.

Connecticut's Governor M. Jodi Rell and the General Assembly's Democratic majority expressed interest in joining the 22 other states participating in the Streamlined Sales Tax Project (SSTP) earlier this year, but officials in the state's budget office doubt that the project will actually bring in much money, the Stamford Advocate reports.

Scott Peterson, executive director of the SSTP, which has set up uniform standards for exemptions and provides businesses with software that calculates the tax, told the Connecticut Streamlined Sales Tax Commission that compliance by businesses is voluntary, the Advocate reports. So far 1,060 businesses nationwide have registered to collect the sales taxes and return them to the states. North Carolina has received the most in sales tax revenue from the Streamlined Sales Tax Project, $15.6 million, Peterson said, far less than the estimated $520 million that Connecticut is trying to collect. In addition, each state must pay dues to the SSTP.

A 1967 Supreme Court ruling held that retailers are responsible for collecting sales tax only in states where they had stores or some other kind of business presence. Amazon, the giant online retailer has warehouses in four states: Kansas, Kentucky, North Dakota, or Washington and calculates sales tax only for purchases that are shipped to these states.

But the New York State Tax Department recently issued a new legal opinion that the state does have a right to demand that the sales tax be paid up front, the Buffalo News reports. New York's Governor Eliot Spitzer initially supported a Tax Department's plan to require Amazon and others to collect the state's 8.75 percent tax, but he quickly reversed himself. Spitzer "just thought it was not the right time to be asking some New Yorkers to pay mores sales tax, so we pulled it back," said Paul Francis, the governor's budget director.

Florida estimates that it is losing more than $2 billion annually from untaxed Internet sales and, like Connecticut, is considering joining the Streamlined Sales Tax Project. "This is not a new tax or changing an exemption," said Julia Johnson, a member of the Taxation and Budget Reform Commission. "This is about collections."

Streamlining Florida's sales tax will require changing or eliminating some of the state's many sales tax exemptions. While Florida exempts orange juice from sales tax only if it is 100 percent juice, for example, SSTP rules say orange juice can be exempt if it is 50 percent juice. Florida also exempts bottled water, charter fishing boats, courier services, haircuts, and taxicab rides.

Eliminating Connecticut's $50 clothing exemption in order to join the Streamlined Sales Tax Project might not cause the difficulty that some members think, suggests State Senator Eileen Daily, co-chairwoman of the Streamlined Sales Tax Commission. She sees the major benefit to joining the project in simplifying the tax code, according to the Advocate. "I think we have a lot more to find out," Daily says. "It didn't sound like there's much of an increase in revenue. It might improve the business climate . . . for our state."

The decision by Governor Spitzer not to require Amazon and others to collect sales tax on purchases destined for New York may be only temporary, the Buffalo News reports. "For now, he's going to give Amazon the benefit of the doubt," Budget Director Francis says.

As Florida grapples with a large-scale tax reform, progress is slow toward joining the SSTP, reports. The commission studying the project is composed of 25 business and political leaders. Support for taxing Internet sales has the support of the Florida business community.


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