NEW YORK (AP) — Shopping online can be a way to find bargains while steering clear of crowds — and sales taxes.
But those tax breaks are starting to erode. With the recession pummeling states' budgets, their governments increasingly want to fill the gaps by collecting taxes on Internet sales, which are growing even as the economy shudders.
And that is sparking conflict with companies that do business online only and have enjoyed being able to offer sales-tax free shopping.
One of the most aggressive states, New York, is being sued by Amazon.com Inc. over a new requirement that online companies must collect taxes on shipments to New York residents, even if the companies are located elsewhere. New York's governor also wants to tax "Taxman" covers and other songs downloaded from Internet services like iTunes.
The amount of money at stake nationwide is unclear; online sales were expected to make up about 8 percent of all retail sales in 2008 and total $204 billion, according to Forrester Research. This is up from $175 billion in 2007.
Based on that 2008 figure, Forrester analyst Sucharita Mulpuru says her rough estimate is that if Web retailers had to collect taxes on all sales to consumers, it could generate $3 billion in new revenue for governments.
It's unclear how much more could come as well from unpaid sales taxes on Internet transactions between businesses. But even with both kinds of taxes available, state budgets would need more help. The Center on Budget and Policy Priorities estimates that the states' budget gaps in the current fiscal year will total $89 billion.
Collecting online sales taxes is not as simple as it might sound. A nationwide Internet business faces thousands of tax-collecting jurisdictions — states, counties and cities — and tangled rules about how various products are taxed.
And a 1992 U.S. Supreme Court ruling said that states can't force businesses to collect sales taxes unless the businesses have operations in that state. The court also said Congress could lift the ban, which remains in place — for now.
As a result, generally only businesses with a "physical presence" in a state — such as a store or office building — collect sales tax on products sent to buyers in the same state. For instance, a Californian buying something from Barnes & Noble Inc.'s Web site pays sales tax because the bookseller has stores in the Golden State. Buying the same thing directly from Amazon would not ring up sales tax.
That doesn't mean products purchased online from out-of-state companies are necessarily tax-free. Consumers are usually supposed to self-report taxes on these items. This is called a use tax, but not surprisingly, it tends to go unreported.
In hopes of unraveling the complex tax rules — and bringing states more money — 22 states and many brick-and-mortar retailers support the efforts of a group called the Streamlined Sales Tax Governing Board. The group is getting states to simplify and make uniform their numerous tax rates and rules, in exchange for a crack at taxing online sales.
Among other things, participating states need to change how they define things such as "food" and "clothing." For example, one state might now consider a T-shirt clothing and tax it as such, while another might consider it a sporting good and tax it differently.
In response, more than 1,100 retailers have registered with the streamlining group and are collecting sales taxes on items shipped to states that are part of the agreement — even if they are not legally obligated to.
The streamlining board also is lobbying Congress to let the participating states do what the Supreme Court ruling banned: They could force businesses to collect taxes on sales made to in-state customers, even if the businesses don't have a physical presence there.
New Jersey, Michigan and North Carolina are among the largest of the 19 states that have adjusted their tax laws to fully comply with the group's streamlined setup. Washington was the only state to join in 2008, but three more states are close to becoming full members of the group. And Scott Peterson, the group's executive director, expects another seven states — including Texas, Florida and Illinois — to introduce legislation in January that would make them eligible to join.
Undoing the patchwork can be difficult, even if the weak economy increases states' motivation to go after online sales taxes. Similar bills have been introduced in several states and failed, sometimes because of the cost of changing tax laws. New York, for example, decided against joining the streamlining board because it would require extensive revisions to its tax rules.
Besides various states and retailers such as Wal-Mart Stores Inc., Borders Group Inc. and J.C. Penney Co., the National Retail Federation, the industry's biggest trade group, also supports the Streamlined Sales Tax group.
Companies that handle Web sales only have organized as well. NetChoice, whose members include eBay Inc. and online discount retailer Overstock.com Inc., supports the states' tax simplification efforts, but its executive director, Steve DelBianco, says online retailers should have to collect taxes only in states where they have a physical presence.
But what if the meaning of "physical presence" is changed? New York essentially did that in April when its budget included a provision requiring online retailers like Amazon to collect taxes on purchases made by New Yorkers.
The new rule requires retailers to collect sales tax if they solicit business in New York by paying anyone within the state for leading customers to them. Since some Web site operators within New York are compensated for posting ads that link to sites like Amazon, the online retailers would have to collect taxes.
Matt Anderson, spokesman for the New York State Division of the Budget, said the state expects to reap $23 million during the current fiscal year, which ends March 31, from newly collected online sales taxes.
That's a sliver of the overall state budget for the same period, which is $119.7 billion. The state faces a revenue gap of $1.7 billion.
Yet Anderson said the state wants "to level the playing field and end the "unfair competitive advantage" Web-only companies have over brick-and-mortar stores that can't avoid collecting sales taxes.
Amazon complies, and collects sales taxes on shipments to New York. However, Amazon is still fighting the rule. It sued New York in April, alleging its provision is unconstitutional. Amazon also said it is being specifically targeted by the law. The case is pending.
Amazon declined further comment.
Salt Lake City-based Overstock is also suing New York over the law. Unlike Amazon, Overstock is not collecting sales tax in New York, because it ended agreements with about 3,400 affiliates in the state that were being paid for directing traffic to Overstock.com.
The Streamlined Sales Tax group hopes Congress takes up its uniform-tax idea in 2009. Peterson thinks the dismal economy boosts the chances of passage.
But Congress also will be occupied with economic stimulus plans involving bigger pools of money. And Mulpuru, the Forrester Research analyst, notes that for years there has been talk of taxing online retailers.
"It's a legal morass," she said. "In a best-case scenario, it's going to take a while to sort everything out."
Local News
Buying on Web to avoid sales taxes could end soon
- Local News
-
-
Ticonderoga faces severe school cuts
The district is starting its new budget process almost $2 million in the hole. Officials are seeking public input on the problem.
-
One injured in Plattsburgh house fire
A female suffered second- and third-degree burns in a fire at her South Catherine Street home early Sunday.
-
Plattsburgh's Sweet Adelines sing music of the heart
Sweet Adelines spread message of love on Valentine's Day with yearly singing valentines.
-
Love between the lines
Dr. Nell Irvin Painter of New Russia and Plattsburgh State's Dr. J.W. Wiley share historical and current viewpoints on interracial loving, American-style.
-
NCCS wins CVAC cheerleading competition
NCCS wins first place for the eighth time in nine years
-
Tentative contract reached with officers
The deal with New York state would cover the 2,800 members of the New York State Correction Officers and Police Benevolent Association who typically work at specialized state centers such as the Sunmount Development Disabilities Services Office in Tupper Lake.
-
Lookback: Feb. 13-19
News stories from around the region from 25, 50, 75 and 100 years ago this week.
-
Of Interest: Feb. 13, 2012
Peru Central School Board to hold budget discussion; Dannemora to discuss highway post; Beekmantown School Board invites budget input; Willsboro School Board to discuss policies; Chazy School Board to discuss budget; SLCS Board to appoint clerk pro-tem; Keeseville Zoning Board cancels meeting; Elizabethtown-Lewis School Board to work on budget.
-
Gourds' shapes create interesting canvas
Georgette Bacon's gourd art is on display through March 10 at Foothills ARTSociety in Malone.
- February 12, 2012
-
NCCS wins CVAC cheerleading competition
NCCS wins first place for the eighth time in nine years
-
One injured in Plattsburgh house fire
A female suffered second- and third-degree burns in a fire at her South Catherine Street home early Sunday.
-
Plattsburgh's Sweet Adelines sing music of the heart
Sweet Adelines spread message of love on Valentine's Day with yearly singing valentines.
-
Ticonderoga faces severe school cuts
The district is starting its new budget process almost $2 million in the hole. Officials are seeking public input on the problem.
-
Tentative contract reached with officers
The deal with New York state would cover the 2,800 members of the New York State Correction Officers and Police Benevolent Association who typically work at specialized state centers such as the Sunmount Development Disabilities Services Office in Tupper Lake.
-
Attempted-murder trial set
The case against Robert J. McCann, who is charged with trying to kill his former girlfriend at a secluded Westville site, begins Tuesday in Franklin County Court.
-
A historic battle for interracial marriage
Forty-five years ago, the U.S. Supreme Court struck down all remaining state bans on interracial marriage in Loving v. Virginia.
-
Fireworks to close weekend carnival
The final day of the Saranac Lake Winter Carnival is filled with activities and events. INCLUDES VIDEO
-
Arts and economic development discussed
A success story about a theater in Glens Falls underscored the importance of the arts at a presentation put on by Partnership for Community Development in Plattsburgh.
-
Ticonderoga faces severe school cuts
- Recent Article Comments
Greece Passes New Austerity Deal Amid Rioting
Coroner: Houston Autopsy Results Weeks Away
Raw Video: Greek Rioting Ahead of Austerity Vote
Raw Video: Child Rescued After Kosovo Avalanche
Pop Music Superstar Whitney Houston Dies at 48
Whitney Houston's Church Mourns Her Passing
Reaction to Houston's Death at Clive Davis Party
79 Turtles Seized at Shanghai Airport
Severe Cold Wreaks Havoc in China
Fuel Removal Under Way on Capsized Italian Ship
Police: Houston Found Dead in Her Hotel Room
Paul Suffers Narrow Loss to Romney in Maine
Palin Brings Anti-Washington Message to CPAC
Obama Scraps Birth Control Mandate
Navy Names Ship for Gabrielle Giffords
Uzbek Man Pleads Guilty in Plot to Kill Obama
Marines: No Punishment for Nazi-like Flag
Vets Look to Translate Military Skills Into Jobs
Raw Video: School Bus Burst Into Flames
Pentagon: Allow Women Closer to Front Lines
