East Valley shoppers who prefer to buy in virtual stores rather than the brick-andmortar kind soon may be paying more for their online and mail-order purchases.
A bill that would force Internet and catalog retailers to collect sales taxes on all purchases from American companies by customers in the United States was introduced in the U.S. House of Representatives this week. Rep. Jeff Flake, R-Ariz., sits on the subcommittee that will review the bill before it moves to the full House.
A Senate version is expected to be introduced next week, said J. Craig Shearman, spokesman for the National Retail Federation. If the bill slides through Congress on a fast track it could become effective by mid-2004, he said.
Proponents say, if passed, the Streamlined Sales and Use Tax would protect local shops from unfair competition and states and cities from losing tax revenue. Opponents say it would saddle e-tailers and states with huge costs.
"There will be up to 7,500 (taxing) jurisdictions unless all the states force the cities to agree to the same definitions," said Steve DelBianco, executive director of Netchoice, a coalition of e-commerce businesses battling the bill. "It’s a decade old issue because of catalog sales. If we’re going to do it let’s get it right and make sure the burden of collection is simplified."
Currently, retailers that have a store or distribution center in a state — Target.com, for example — already are required to collect taxes. E-tailers who don’t — Amazon.com, for example — don’t have to tax their customers. The premise has been that it would be too cumbersome to figure out the taxing eccentricities of all the governing bodies in the country, Shearman said.
The bill requires that states simplify their taxing structures, provide etailers with software to calculate sales taxes nationwide and give the e-tailers a stipend to cover costs of tax collection and distribution, Shearman said. Retailers doing less than $5 million in annual sales would be exempt.
While states, municipalities and off-line retailers have been the bill’s big backers — 31 states including Arizona have approved the proposal — the issue of simplifying tax structures has some worried, among them Chandler.
Chandler, which collected $22 million in retail sales taxes last year, could actually lose revenue if the bill passes, said Laurie Stevens, the city’s tax and utility services manager.
"It sounds really good on the surface," Stevens said. "But (Arizona cities) don’t all tax the same things in the same way, and if that’s what we had to do to get (Internet sales taxes), it might mean revenue losses to the cities. We’re going to look at the bill, but our initial impression is that it would not be a good thing for Chandler."
At this point, the bill does not require all cities within a state to have the same tax rate, but it does require that all taxable items sold within a city have the same rate, said Ellen Marshall, a lobbyist for the bill. So, for example, Mesa and Chandler could have different tax rates, but an apple pie or a Mercedes sold to a Mesa consumer would have to be taxed at the same rate.
A study by the University of Tennessee estimates states and cities lost $13.3 billion in potential taxes in 2001 because of tax-free sales, and that the volume of online sales — and potential taxes—increases 50 percent per year.
Arizona would lose $450 million in taxes in 2003, according to the Tennessee study. The Direct Marketing Association, which is battling the bill, puts that number at a much lower $40 million, DelBianco said.
Scottsdale economic development director Dave Roderique said the lower number seems more reasonable, but it is still nothing to dismiss. Scottsdale, which collected $111 million in retail sales taxes during the past 12 months, gets an average 8 percent of the retail sales taxes collected in Arizona.
If the $40 million is accurate, Scottsdale would lose an estimated $3.2 million in potential sales taxes on Internet and catalog purchases this year.
Recapturing that would be "like attracting a new auto mall or shopping center," Roderique said. "It’s worth fighting for."
Mesa vice mayor Dennis Kavanaugh has been working on the problem as vice chairman of the National League of Cities Information Technology and Communications Committee. Mesa collected $100 million in retail sales taxes last year.
"For state and local governments, it is a primary source of income to pay for city services," he said. "We are very much dependent on sales taxes — Mesa as a city and Arizona as a state — and we’ve had significant losses because of the increased number of sales occurring on the Internet."
Tempe’s general fund is also fueled by retail sales taxes — $57 million last year, said Jerry Hart, financial services manager.
"Any taxes we can recapture would be important, without a doubt," Hart said.