WEEKLYPRESS.COM · UCREVIEW.COM · NOVEMBER 30 · 2011


‘Cyber Monday’ puts state online sales tax laws under spotlight


Taxpayers will be expected to col- lect and pay their own taxes on out-of-state purchases this year


By Eric Boehm PA Independent


HARRISBURG — Ameri- cans are expected to hit on- line stores for record level sales this holiday season, but Pennsylvania and other states want consumers to pay up when they make online purchases.


Cash-strapped states are eye- ing unpaid sales tax from on- line purchases as a potential revenue source, with differ- ing levels of success. Pennsyl- vania’s plan is to add a new line to the state’s income tax forms and educate the public on the importance of paying those uncharged sales taxes — or else. State Secretary of Rev-


enue Dan Meuser reminded Pennsylvania’s e-shoppers to save receipts and check them for sales tax charges. If no sales tax charges taken out, residents should save the re- ceipts and include the appro- priate tax payments on the new income tax forms next year, according to a statement released last week. “When sales tax isn’t collect-


ed by the seller on a taxable item or service, it becomes the purchaser’s responsibil- ity — by law — to report and remit use tax,” Meuser said in the statement. The state Department of Revenue estimates that on- line purchases will account for about $380 million in rev- enue from unpaid sales tax this year in Pennsylvania, up from $350 million in 2010. Most of that increase is due


to more people choosing to shop online. The National Retail Fed- eration, which advocates on behalf of retailers, said more than 122 million Americans were expected to shop online Monday — nicknamed “Cy- ber Monday” because it is the largest online shopping day of the year — more than dou- ble the total from fi ve years ago and up from 107 million last year. But unless changes are made


to laws regarding sales and use taxes, Pennsylvania can do little to collect that extra revenue, aside from relying on the honesty of taxpayers. Elizabeth Brassell, a spokes- woman for the Revenue De- partment, said taxpayers will not have the option of leaving the new line blank. “As far as enforcement, this


is largely a voluntary pro- cess,” Brassell said. “This


education and outreach is the fi rst step in the process, and we are still evaluating all the options.” The department is expected


to announce a broader policy for collecting use tax from on- line retailers within the next few months. Use tax — essentially sales


tax that is required to be paid on items purchased out of state — has been on the books in Pennsylvania since 1953, the same year the state’s sales tax was passed. Like sales tax, use tax in the state is 6 percent. For penny-pinching con-


sumers, the savings of buying online are about more than nickels and dimes. On a $400 purchase, sales taxes will to- tal $24, for example. But some retailers argue


that the savings provided by online shopping are driving more consumers away from brick-and-mortar stores and onto the Web. Todd Dickinson, owner of


Aaron’s Books in Lititz in Lancaster County, said his customers are increasingly drawn to online retailers be- cause of the potential saving from not paying sales taxes. “It’s not fair to have two


different reporting systems,” Dickinson told PA Indepen- dent. “As a business in Penn- sylvania, we collect and pay the 6 percent sales tax. But if the same customer purchas- es from Amazon, that book might come from a Penn- sylvania warehouse and be delivered by a Pennsylvania trucking company, but they do not have to collect sales tax.”


Dickinson’s store was one of about 200 small businesses in Pennsylvania that formed a coalition earlier this year to call on the state General As- sembly to act on the issue. In a letter sent in May, the Pennsylvania Alliance for Main Street Fairness said it wanted a level playing fi eld between online and tradition- al retailers. In 1992, the U.S. Supreme Court ruled that states do not have the authority to require out-of-state businesses to pay sales tax, unless the busi- ness has a physical presence — known as “nexus” — in the state. Large online retailers, such as Amazon.com, get around the nexus requirement by establishing warehouses and distribution centers as inde- pendent fi rms and licensing with them to do business. The online sales giant has several distribution centers in Penn- sylvania, but it does not remit


sales tax to the state. Steve DelBianco, executive director of The NetChoice Coalition, a Washington, D.C.-based trade association for online businesses, said the U.S. Constitution’s commerce clause does not allow states to enact taxes on businesses that do not have a physical presence, a position that was affi rmed by the 1992 Supreme Court decision. “It is a level playing fi eld to- day. Everybody — whether you are online or not — has an obligation to collect sales taxes in the states where they have a physical presence,” DelBianco said. While Amazon tries to skirt state collection laws, 17 of the 20 largest online retailers in Pennsylvania collect and remit sales taxes in the state, according to a study by The NetChoice Coalition. Some states — most notably New York and Illinois —re- quire companies to pay sales taxes when they do business with in-state affi liates, such as warehousing and trucking companies. The result, in most cases, has been that the online marketers have severed those relation- ships and moved to affi liates in other states with less strict tax laws. Other states, like California and Tennessee, have worked out deals with Amazon and other large online retailer to pay sales taxes to the state di- rectly, but that solution does not work for smaller online sellers.


DelBianco said those small online retailers stand to lose the most if the federal govern- ment requires all retailers to report out-of-state sales tax. In effect, that would require all online businesses to track all local sales tax require- ments, which vary from state to state and even within a state’s border. Philadelphia and Pittsburgh, for example, have different sales tax laws than the rest of Pennsylvania. At the state level, state Rep. Kerry Benninghoff, R-Cen- tre, chairman of the House Finance Committee, said the issue would have to be ad- dressed sooner or later. “This is an issue of the chang- ing times,” Benninghoff said. “We’re not being greedy and looking for new ways to tax people. This is revenue that is already owed.” For a long-term solution, though, state and federal pol- icy on interstate commerce will have to change. Dickinson and Benninghoff agreed that the best solution is for Congress to pass a law


addressing online purchases, but there is little hope of that happening in the near future with Congress gridlocked on so many issues. Though there is an effort to do so. A bipartisan group of U.S. senators introduced the Marketplace Fairness Act earlier this month, which would require online retailers to collect sales tax even when the retailers are out of state. Amazon supports the bill, but other online marketers, including eBay, oppose it. The Direct Marketing Association, which represents online mer- chants and other direct ship- ment retailers, said the bill would place “new, unfunded mandates on out-of state com- panies to comply with com- plex and changing tax struc- tures in many states around the country,” the group said in a statement, warning that the new rules would hamper e-commerce. As of Monday afternoon, nei- ther U.S. Sen. Bob Casey, D- Pa., or U.S. Sen. Pat Toomey, R-Pa., had signed onto the bill


as cosponsors. Pennsylvania Independent is a public interest journalism project dedicated to promoting open, transparent, and accountable state government by reporting on the activities of agencies, bureaucracies, and politicians in the Commonwealth of Pennsylvania. 225 State Street, Suite 300 | Harrisburg, PA 17101 | Phone 717.350.0963 | Email tips@PAindependent.com


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