Strapped States Still Can’t Collect Billions in E-Tail Taxes

States continue to watch billions of dollars in taxes on e-tail sales slip through their fingers more than 15 years into the commercial Web boom, officials said. Sales and use taxes owed but not collected on e-commerce will total at least $11.5 billion in 2012, one-quarter of the obligation, economics Professor William Fox and University of Tennessee colleagues have predicted. The problem has been getting e-tailers that don’t have stores in a state to collect taxes that purchasers owe, officials said.

The growth of e-commerce threatens the financial base of the sales tax by putting brick-and-mortar retailers at a significant price disadvantage, said Scott Peterson, executive director of the Streamlined Sales Tax Governing Board. The “sales tax will cease to exist” as a state revenue source without changes, he said.

But there’s a major counter-trend, said Senior Manager Verenda Smith of the Federation of Tax Administrators: Physical retailers’ gaining market share online, and companies like Amazon.com finding it advisable to open physical stores. Brick-and-mortar retailers collect sales taxes even on Internet sales in states where they have stores and remit the proceeds. Sellers without a legally sufficient connection to a state aren’t required to collect.

The Streamlined Sales Tax board is expected late Monday to go along with a unanimous recommendation by its compliance committee to admit Georgia effective Jan. 1 as an associate state, Peterson said Friday. The action would make Georgia the 24th state to formally join the effort to harmonize tax-law definitions in an effort to satisfy federal requirements for levies on remote sales, he said. It would signify that Georgia has made substantial progress but doesn’t comply fully, Peterson said.

This is the first year in five that no bill has been introduced in the U.S. Senate to allow states participating in the effort to tax online and other long-distance purchases, Peterson said. He blamed that on increased worries about being associated with tax measures. The Senate sponsor in previous years was Republican Mike Enzi of Wyoming. Peterson wouldn’t venture a guess on congressional action next year or on when the measure might pass. “Congress moves slow,” Smith said, but on extending sales tax authority, it has been “really, really slow."

Amazon is on the front lines of fighting off state efforts to make merchants help collect taxes owed by consumers. In recent days, the company has won in U.S. District Court in Washington state a First Amendment challenge to a demand by North Carolina authorities for information about individual sales, and it has said it will fight a $269 million bill from Texas for back taxes on sales to residents. Amazon could appeal to a state trial court if it loses its administrative challenge, said Allen Spelce, spokesman for the Texas Comptroller of Public Accounts.

In response to what have been nicknamed Amazon laws -- state enactments to peg a duty to collect sales tax and turn over the proceeds on a remote retailer that has marketing affiliates in-state -- the company has dropped affiliate programs and taken New York to court. Amazon has appealed a defeat at the trial level to an intermediate New York court.

Amazon does support the Main Street Fairness Act, HR-5660 by Rep. Bill Delahunt, D-Mass., to carry out the streamlined sales tax effort, Peterson said. Large companies sometimes favor industry regulation that they're in a better position than smaller competitors to comply with, officials said. But eBay is the most formidable opponent of the effort, Peterson said. Neither eBay nor Amazon responded to requests for comment.

What no one questions is states’ right to the money whose collection has been so slippery. Five states don’t have sales taxes, Smith said. But those that do all also have complementary use taxes that purchasers owe directly when the sellers don’t remit sales taxes on covered transactions, including remote sales, she said. Some states are attacking the collection shortfall from that end, including by adding auditors and sending demand letters to residents, she and Peterson said. But states prefer going after large pools of money from small numbers of targets, like merchants, to seeking small amounts from large numbers of residents, Smith said.

Under a 2009 state law, California has sent letters seeking use-tax returns to service businesses declaring at least $100,000 in annual gross receipts, said Anita Gore, a spokeswoman for the state Board of Equalization, the sales tax authority. It sent 200,000 letters last year and by Dec. 15 will have mailed an additional 350,000, she said. The result has been the filing of almost 152,000 use-tax returns, reporting $27 million in obligations. Almost five in six returns declared no tax due, Gore said. “Audits could result.”

California collects about $40 billion a year in sales taxes and $4 billion in use taxes, Gore said. An estimated $1.1 billion in annual California taxes on remote sales including e-commerce aren’t paid, she said. The state’s revenue shortfall this year was $19 billion, she said.