Tax Wars: Online v. Brick-and-Mortar Retailers

A war is brewing in California (and beyond) between traditional retail and online retailers on sales tax. For years politicians said they would not tax the internet, but a recent change in laws has made it so that Amazon.com has to collect sales tax from any affiliate doing business in the state. While traditional brick-and-mortar retailers applauded this change (they see it as leveling an uneven playing field) online retailers are, to turn a phrase, pissed off. Among other efforts, Amazon.com is seeking to rally anti-tax Americans by proposing a voter referendum in California to overturn the new state law.

Retailers, using the power of lobbyists in D.C. are on the other side of the issue and include such heavyweights as Wal-Mart, Sears and national organizations such as the National Retail Federation. Because of their lobbying efforts and deep local, state, and federal connections with politicians, they have the support of states, which sees taxing online sales as a new ways to gain much-needed revenues.

"Congress has to take action," Neal Osten of the National Conference of State Legislatures, tells Politico. "..this is $23 billion that the federal government can give to the states."

Meanwhile, Sen. Dick Durbin (D-Ill.) is expected to introduce a bipartisan bill in the next few months called the "Mainstreet Fairness Act," that would allow states to require online retailers to collect sales tax if states agree to standardize those taxes.

Politico claims that Durbin has held off on introducing the bill because he wants to line up support for it. But Durbin will probably find himself caught in the crossfire of lobbying efforts from both sides of the issue.

Online resellers such as eBay and the Electronic Retailing Association are stepping up efforts by hiring lobbyists firm Mehlman Vogel Castagnetti, led by Bruce Mehlman - a former assistant commerce secretary for technology policy in the George W. Bush administration. The firm recently added Brian Wild, a former senior adviser to House Speaker John Boehner (R-Ohio), to lobby on this issue. It has also added ML Strategies. Amazon has hired Cauthen Forbes & Williams, the Bockorny Group, and TwinLogic Strategies.

"Congress is not anxious to run in and do this," points out Steve DelBianco, executive director at NetChoice, a group that represents numerous online retailers and resellers. "If Congress were to grant states this authority to force retailers to pay sales tax, consumers will feel it like a tax increase and Congress will be scratching its head saying, 'What do we get out of it?'"

On the other side of the issue is the Streamline Sales Tax Governing Board, a group that represents 23 states. They have hired Clark Lytle & Geduldig. Sears has hired OB-C Group. The International Council of Shopping Centers is also lobbying for Congress to step in.

"We’ve talked to lawmakers who want to support Sen. Durbin’s bill," David French, senior vice president of government relations at the National Retail Federation, tells Politico. "What has played out in the states has heightened interest in sales tax fairness."

While a showdown may be brewing in our nation's capitol on this issue, Amazon also want to put the issue in the hands of voters by proposing a referendum voters could have a say in. The company is also battling a similar law in New York in the courts. The company is doing what it can to combat new laws in Illinois and California, and in Texas it has proposed that it invests in warehouses and distribution centers in the state if it is allowed to operate for four more years without having to worry about collecting sales tax.

Obviously online sales tax collection is a murky issue and one that can be dangerous for politicians - particularly on the national stage - to get involved with. Opponents of state and federal proposals to collect sales tax online will no doubt say that what they are doing is tantamount to raising taxes on every day consumers..

Read the entire Politico report here.