As states and Congress move to make e-tailers collect sales taxes, Overstock.com and eBay oppose them while Amazon.com calls for uniformity
Amazon tax fever is spreading. In the months since a New York State law took effect that imposes sales taxes on products promoted through Web sites based in the state, other governments have moved to get in on the action, and online retailers aren't happy.
Last year, New York became the first state to pass legislation requiring large Web-based retailers, including Amazon.com ( AMZN ) and Overstock.com (OSTK), to collect state sales taxes on products promoted through affiliated state-based Web sites. Cash-strapped states across the country are mulling similar legislation and a federal online-sales tax bill that may be introduced in Congress could be signed into law as early as this year.
The growing impetus for taxes on online goods has touched off a flurry of lobbying activity and lawsuits from online retailers hoping to defeat legislation that would take away some of the price advantage they enjoy over brick-and-mortar retailers. ""We'll do everything in our power to assist our sellers so they are not harmed," says Tod Cohen, deputy general counsel and vice-president for government relations at eBay ( EBAY ). "We want to make sure than small businesses aren't strangled in their cribs."
State Sales tax collections are down
States and local governments hope sales taxes would help them recoup part of the revenue lost amid a recession that has diminished property values and crimped demand for items sold in stores. In the fourth quarter, state sales tax collections dropped 4%, the steepest decline in 50 years, according to the Nelson A. Rockefeller Institute of Government. Online sales taxes could help states generate at least $52 billion in added revenue over the next six years, according to an Apr. 13 study conducted by three University of Tennessee professors. Requiring virtual stores to collect taxes, even in parts of the country where they don't have physical operations, would also place e-tailers on a more even footing with brick-and-mortar stores such as Wal-Mart (WMT), which collect sales taxes on in-store as well as online purchases.
Companies that sell products over the Internet say the taxes would hamper growth. "The introduction and passage of an Internet tax bill would have adverse effects on e-commerce," George Askew, an analyst at Stifel Nicolaus, wrote in a recent note. After New York's law was passed, Overstock.com says it had to terminate agreements with some 3,400 Web sites that once promoted the closeout retailer in the Empire State.
Overstock ceased operating in New York altogether, says the company's president, Jonathan E. Johnson III. After losing a court battle seeking to repeal the law, Overstock plans to file an appeal in the coming weeks, Johnson says. "These states are signing up for a lawsuit, or for businesses to pull out of their states," he says.
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Courtesy article by Olga Kharif appearing in Business Week on April 26, 2009
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